Iraq and the Islamic State: The Cause and the Conundrum

 

“We are often apt to read history backwards, which, I submit, is a very wrong method of reading history. History, in order to be properly appreciated, has to be read forwards. One must put oneself behind the events which one desires to evaluate, and then judge and appraise them”- 28th November, 1947, Sir Zafrulla Khan, UN General Assembly.

 

While the world watches Israel and Gaza thrash each other to death, the former providing the beating and the latter complying with a rising death toll, the jihadist group Islamic State (IS) continues its havoc wreaking campaign through Iraq. From its capture of Fallujah in early January 2014, and then its panic-inducing milestone takeover of the second city of Mosul to the Kurdish capital of Arbil, up to the North of Baghdad, with cities like Tikrit and Samarra under full IS control, to its West with Ramadi, IS continues its descent towards the capital.

 

 

IS Iraq

IS in Iraq, source: BBC
http://www.bbc.com/news/world-middle-east-27838034

 

The Sunni based militant Islamist group, previously known as the Islamic State of Iraq and the Levant (ISIL) before its self-declared caliphate installed its elusive leader Abu Bakr Al-Baghdadi as the Caliph of the seized territories in the Levant in the beginning of June, has been locked in a deadly battle in Syria with Hezbollah, allied with the Syrian army, in both Syria and the spillover of in-fighting on Lebanon’s eastern frontier, as well as continuing its bloody expansion through Iraq. Two weeks ago, it overran hundreds of Iraqi government forces including Shiite militia in Tikrit who had been trying to retake the city. Government forces and Shiite militia volunteers were pushed back 10 miles south of Tikrit to the town of Ajwa. In Syria it has hefty control in areas like Raqqa, Idlib and Aleppo.

 

A journalist for Issuehawk.com wrote on Wednesday, “Determining the “beginning” of the turmoil in Iraq is a complex task, so the best way to begin is to work backwards.”

 

And while the ensuing article briefs over key points in the Islamic State’s movement across Iraq, from its annexation of Fallujah to Mosul and the cities and provinces between as well as locations near the Syrian and Turkish borders, it leaves out the originating factor, the raison d’être of the strong presence of IS in Iraq specifically, perhaps thus vindicating the words spoken sixty years ago, that to go backwards is to stunt a progressive view of history.

 

Likewise, the mainstream press duly informs us that IS’s success in Iraq is, first and foremost, a result of the fallout from the Syrian civil war that has been raging on in the last four years and which helped IS grow stronger. The Syrian civil war itself stemmed from the 2011 Arab Spring uprisings in the country against the over-zealous President Basher-al-Assad, from among which emerged strong Al-Qaeda affiliates, such as the leading Jabhat-al-Nusra and the Islamic Front, both of whom IS engaged in fierce combat last year during the internecine conflict between rebel groups. It also tells us that IS was once a faction of Al-Qaeda that defected, or rather was disowned (not long after it claimed responsibility for a suicide bombing in rebel headquarters in the Syrian city of Aleppo in which a senior Al-Qaeda affiliated rebel commander died), from the infamous terror network in early March 2014 to pursue its intended, caliphate conquest across the better part of the Levant.

 

Al-Qaeda cut ties with IS, known then as ISIL, purportedly after the latter defied the former’s commands to leave Syria to Jabhat-Al-Nusra, and months of clashes with other Al-Qaeda affiliates and western backed rebels fighting in Syria.

 

And finally, the concoction of IS itself as a jihadist movement, one that abides by a particularly extreme interpretation of Wahabbism, arising from its predecessors amid the Sunni resistance as part of the Iraqi insurgency against the 2003 US invasion in its early years, is common knowledge.

 

But the position that the speedy establishment and lightning expansion of the current Islamic State in Iraq is due to the Syrian civil war, under whose bloody shadow the dregs of a radical ideological movement like IS came into full fruition, while correct by the current facts to an extent, falls short of the bigger picture.

 

Passing the buck

 

There are several things that render this view erroneous. For one thing, it leaves a vacuum of partisan blame that audacious news anchors and self righteous hacks proceed to fill with lamentations of the ungrateful nature of these crazy sand dwellers Iraqis, as Martha Raddatz of ABC News did after the IS victory over Fallujah, « So 11 years after the US invaded Iraq–lost nearly 4,500 American lives and spent over $730 billion–Iraq is in crisis » or CNN’s Wolf Blitzer expressed in no uncertain words on his show The Situation Room how “the United States spent 10 years there. We assumed that Iraq would emerge a peaceful, stable democracy.”

What were you drinking when you developed these assumptions, Wolfy? Oil?

This of course ignores not only the thousands upon thousands of Iraqi civilian lives lost under the violence of the US invasion, the hundreds of Iraqis displaced, not to mention the destruction of a sovereigns state’s whole infrastructure, but also the natural consequences of military invasion by an unwanted, foreign power, which includes the brewing of sectarian tensions as a people already crippled by thirteen years of sanctions were further divided by the friendless, anarchic landscape of war.

 

And for another, it leaves out the US government’s complicity in what is touted solely as prime minster Nuri-al-Maliki’s incompetence, which hints at the overall Middle Eastern ineptitude at sustaining a ‘successful’ western friendly democracy by both the right and the left. And achieves the overall aim of shifting the blame firmly onto what pundits call the millennium old sectarian religious war that has rocked the region. If we disregard for a minute the fact that sectarianism or groups like IS in Iraq did not exist in its current form of violence and persecution among the civilian population until after the 2003 invasion, this still fails to explain the root cause of the turmoil enveloping the country.

 

It’s funny how the practice of passing the buck has become the common subtext of Western political discourse in relation to Middle Eastern affairs. It could be even more ironic if it wasn’t so predictable that such a practice takes place in the newsrooms and pundit panels of the liberal press, the fourth estate of the world’s developed nations.

 

As a great demonstration of this very fact, Wolf Blitzer says later on during the June 10th airing of the Situation Room: “Once the U.S. leaves Iraq, just as the U.S. leaves Afghanistan, they’re going to go back to the Shiites, the Sunnis, the Kurds. In Syria, you see the civil war going on there. Don’t you think what’s going on in the region, irrespective of U.S. involvement, would have happened under any circumstances, given the centuries of the tradition of what’s gone on in that part of the world?”

 

In other words, are we talking about the installation of democracy, or merely a shell of this ideal filled with an oozing centre of glib hypocrisy?

 

Lakhdar Brahimi, United Nations diplomat and former United Nations and Arab League Special Envoy to Syria talks about why repeating history, in other words listening to Tony Blair on Iraq, is a mistake.

 

 

A soldier speaks

 

As the crisis in Iraq began to heat up in mid June,Former United States soldier Chelsea Manning described the situation as presented to him in 2010 during his work as a US Intelligence analyst in Iraq, around the time of al-Maliki’s reelection, in an Op Ed piece for the New York Times.

“If you were following the news during the March 2010 elections in Iraq, you might remember that the American press was flooded with stories declaring the elections a success, complete with upbeat anecdotes and photographs of Iraqi women proudly displaying their ink-stained fingers. The subtext was that United States military operations had succeeded in creating a stable and democratic Iraq.”

“Those of us stationed there were acutely aware of a more complicated reality.”

Bradley Manning

Bradley Manning
source: theguardian.com

He goes on further, describing the process by which dissidence under al-Maliki was crushed through the work of intelligence analysts like himself.

“Military and diplomatic reports coming across my desk detailed a brutal crackdown against political dissidents by the Iraqi Ministry of Interior and federal police, on behalf of Prime Minister Nuri Kamal al-Maliki. Detainees were often tortured, or even killed…I received orders to investigate 15 individuals whom the federal police had arrested on suspicion of printing “anti-Iraqi literature.” I learned that these individuals had absolutely no ties to terrorism; they were publishing a scholarly critique of Mr. Maliki’s administration. I forwarded this finding to the officer in command in eastern Baghdad. He responded that he didn’t need this information; instead, I should assist the federal police in locating more “anti-Iraqi” print shops.”

It won’t come as a surprise that the former US soldier’s Op-Ed was largely ignored by mainstream commentators. But Manning, who not only experienced US involvement in al-Maliki’s Iraq firsthand through his time in the army, but has also been sentenced to thirty five years solitary confinement after leaking 250,000 U.S state diplomatic cables and 500,000 Army reports to the whistle-blowing platform WikiLeaks, all which detail, among other information, the excesses, war crimes and breaches of International Law by US and coalition forces operating in foreign lands, is surely worth listening to.

‘I was shocked by our military’s complicity in the corruption of that election,” writes Manning, “Yet these deeply troubling details flew under the American media’s radar.’

So…now it’s all America’s fault?

Not entirely, but as the world’s superpower, and self-professed policeman, perhaps it should have been more cautious in its preference of al-Maliki over the prior candidate.

So it can’t afford slip-ups?

Not at all, except name more than one country in the Middle East and besides, in whose affairs the US has played part in the last twenty years, the result of which has not been more death, destruction and infighting.

The problem is, one could say, is that it has had far too many for a superpower that is hailed, often by itself, as the stalwart of Democracy and the pinnacle of civilization in the developed world.

Yet this isn’t the time for US bashing or Middle East bashing or even hegemony bashing. History may choose take care of all of that.

 

 

A lethal alliance?

 

The dangerous reality of IS’s triumph in today’s Iraq is that even members of the late Saddam Hussein’s Ba’athist party, now banned, and other secular and moderate Sunnis have formed a sort of mutual alliance under this new extremist faction against who they consider in the last eight years to be their oppressor due to ethnic and sectarian divides. And more lethal is the fact that unlike al-Maliki’s government IS, is not concerned with its reputation as it slaughters any civilians who do not identify with their ideology at will. As Patrick Cockburn wrote in piece on 15th June, for the Independent, detailing the corruption incompetence and occupational nature of the Iraqi army under al-Maliki:

Sectarian discrimination and persecution became the common lot of Iraq’s five or six million Sunni who had been the dominant community for centuries. A Sunni might be picked up by the police, tortured into a confession, sentenced to a long term in prison or even executed. Even if he was found innocent by a court, his family might have to pay $50,000 to $100,000 to get an officer in the prison to sign his release papers. An Isis fighter was recently reported as joking: “When we capture our enemies we kill them; when you capture one of us we pay money and he is released.”

 

“Corruption in the army took place at every level. A general could become a divisional commander at a cost of $2m (£1.18m)…in Sunni areas the army and security forces behaved as an occupation force and were consequently much feared and hated. Frightening and bloodthirsty Isis fighters may be, but for many in Mosul they are preferable to government forces…Anger at these abuses is relevant to what is now happening. The majority of Sunni Arabs in Mosul ….are wary of Isis but terrified of what a vengeful Iraqi army will do if it retakes the city. The same is true in the rest of Sunni Iraq. Isis may have begun the assault, but many other groups have joined in. We are now looking at a general uprising of the Iraqi Sunni. Those taking over Saddam Hussain’s hometown of Tikrit are not Isis, but his old adherents who are putting up posters of the late dictator.”

 

 

 

We might as give up the ghost right now, and admit that the US, through its involvement in Iraq, is undeniably one of the players in this recent escalation (another being Nuri-al-Maliki), not only because Maliki was the US preferred and consequently chosen alternative to Ibrahim-al-Jafaari in 2006, but because it was US and coalition troops that went into Iraq in 2003, waking the hideous monster that is systematically winding up the Levant in its serpentine embrace.

And it could also be said that this is what makes the clearly corrupt Nuri al-Maliki the ultimate scapegoat as US calls for his resignation and the formation of a new government are echoed by both the International community and, much understandably, the Iraqi electorate. Yesterday’s election of Kurdish politician Fuad Masum as President Jalal Talibani’s successor looks like a potent prescient to al-Maliki’s imminent disposal.

Fuad Masum, Iraqi PM

Fuad Masum, Iraqi PM

 

The Choice

 

It’s easy to see the sticky conundrum in which the US finds itself stuck and which leads to such back peddling. If one begins to think of viable solutions to the IS trail of death and destruction that is slowly scything its way towards the seat of the Iraqi government in Baghdad, and which would pose a very real threat of exported-terrorism to the US if it achieved its aims, this brings us to The Choice that the US faces. Either it allies with Iran, “the axis of evil” to help Al-Maliki, or a new government, defeat IS and restore US definition of order in Iraq, or it continues vocally backing some Syrian rebel factions and consequently allies with Al-Qaeda in Syria. This at a time when has been revealed that Shia Iran, firm ally of Maliki and his Shiite majority government, has sent an Iranian Revolutionary Guards commander Ghassem Suleimani, along with 120 advisors from the Guard to help train Iraqi Shiite volunteers.

 

 

Ghassem Suleimani, commander of the elite Quds Force of Iran's Revolutionary Guards.

Ghassem Suleimani, commander of the elite Quds Force of Iran’s Revolutionary Guards.

 

 

The Lebanese-Shiite political and military organization Hezbollah has already sent 250 military advisors to help Iraqi Shiite militia in their struggle against IS as well as upping its support of the Syrian army in Syria. Hezbollah’s involvement in Syria began as early as 2013 in the battle of Qalamoun as it launched a counter offensive against rebels attempting to use the mountainous area as a strategic base.

 

 

Which brings us to another gaping detail neglected in the face of popular analysis, and which, if implemented, further renders previous allegations and rhetoric centered on the Middle East as invalid. The current Syrian regime, which has been vehemently condemned as a bloodthirsty child killing machine for almost four years, and upon which the EU has imposed sanctions, is now a glaring contradiction to the reality that Syrian army, along with Hezbollah, another organisation proclaimed as a terrorist organization by much of the West, are fighting IS to the death in Syria and Lebanon.

 

In other words, if the US did indeed choose to ally, in some official form or other, with Iran to defeat IS, it would be aligned with not only its Nuclear Nemesis, but also indirectly yet distinctly with Hezbollah and Assad The Butcher (as he has been dubbed by press and politicians alike). And that, ladies and gentlemen, is a conundrum personified. It’s all rather funny when one thinks about it, and phrases like full circle and what goes up must come down, come to mind.

 

In times like these, one needs to look at non-official points of view-and even alternate media isn’t exactly the untarnished prism that one would expect. As an aside, in this spirit, an exchange that sums up the current situation went on in the comment section of the Guardian under an piece relaying the news that IS had offered an ultimatum to Iraqi Christians, Convert, pay tax or die:

 

Screen Shot 2014-07-25 at 00.59.11

 

The article in question states a little tidbit of information that reiterates a former point, is easily verified by state documents pre-invasion and fundamentally important in our understanding of Iraq itself as a civilisation before it had retracted head first into the mayhem we see today.

 

“The Mosul residents who saw the Islamic State announcement estimated the city’s Christian population before last month’s militant takeover at around 5,000. The vast bulk of those have since fled, leaving perhaps only 200 in the city. Mosul, once home to diverse faiths, had a Christian population of around 100,000 a decade ago, but waves of attacks on Christians since the 2003 US-led invasion to topple Saddam Hussein have seen those numbers collapse.”

 

 

The lean-mean-fact-reducing-killing-machine

 

All this would be a huge problem for our politicians involved. IF, among other things, we weren’t the proud recipients of the finest, most informative, hard hitting infotainment media organisations in the world.

 

 

Whether it’s the Iraqi ingrates and their thanklessness at the huge US sacrifice for democracy, or the recycled, 60 year old, two headed polemic once again coming to the fore amid the newest escalation of the Israeli-Palestinian conflict, blame shifting is the core principle of contemporary political analysis, the basic tenet of every mainstream pundit’s ideology, because the lean-mean-fact-reducing-killing-machine that is the press could make a Disney villain look like a princess

 

It’s true that the solutions for IS expansion, while fairly simple in theory, pose problems for the interests, and reputation of the US and its most vocal allies in the long run. Those could easily be resolved by the fact that it is unlikely that the US would ally with Iran, publicly at least, considering its systematic vitriol against the Iranian regime in the past few years, something shared with its strongest Middle Eastern ally, namely the state of Israel. And the Obama Administration has already promised against US troops returning to fight in Iraq, something that would further help curdle the mess his predecessor ultimately created and he himself welcomed and exacerbated with open arms. But when you start something, you finish it, and if most of your previous rhetoric is centered on how what you started was done for the benefit of the people it affected the most and conducive to a cohesive and civilised society, and the end result is the antithesis, then there is some serious self-evaluation to be done before one thinks of a just solution. That goes for all.

 

What did Albert Einstein say about insanity again?

 

« Insanity: doing the same thing over and over again and expecting different results. »

 

 

Now if that isn’t the mutual, masochistic love affair between the Middle East and the US in a nutshell, pigs do indeed fly…

 

 

Linked Sources

http://economictimes.indiatimes.com/news/international/world-news/iraq-gets-new-president-in-fuad-masum-un-chief-ban-ki-moon-seeks-more-urgency/articleshow/38982539.cms

http://en.wikipedia.org/wiki/Battle_of_Qalamoun

http://www.democracynow.org/2014/6/24/should_obama_go_to_tehran_how

http://www.sanctionswiki.org/Syria

http://en.wikipedia.org/wiki/Maleficent_(film)

http://issuehawk.com/patton/2014/06/16/isis-movements-in-iraq-point-towards-baghdad-large-scale-conflict.html

http://en.wikipedia.org/wiki/Wahhabi_movement

http://abcnews.go.com/ThisWeek/video/week-reflections-iraq-24252769

http://transcripts.cnn.com/TRANSCRIPTS/1406/10/wolf.02.html

https://www.iraqbodycount.org/

http://online.wsj.com/articles/u-s-signals-1403137521

http://www.businessinsider.com/amazing-pictures-of-peaceful-iraq-2014-6

http://www.channel4.com/news/people-dont-listen-to-tony-blair-any-more-brahimi

http://www.thedailybeast.com/articles/2014/02/03/al-qaeda-denounces-syrian-jihadist-group-isis.html

http://en.wikipedia.org/wiki/Al-Nusra_Front

http://en.wikipedia.org/wiki/Iraqi_insurgency_(Iraq_War)

https://www.globalpolicy.org/previous-issues-and-debate-on-iraq/sanctions-against-iraq.html

http://www.theguardian.com/theguardian/2000/mar/04/weekend7.weekend9

http://www.france24.com/en/20120816-france-syria-assad-butcher-must-go-says-foreign-minister-laurent-fabius/

http://www.csmonitor.com/World/Middle-East/2014/0716/Why-Hezbollah-is-playing-a-smaller-role-in-this-Iraqi-conflict

http://en.wikipedia.org/wiki/Hezbollah

http://www.nytimes.com/2014/06/15/opinion/sunday/chelsea-manning-the-us-militarys-campaign-against-media-freedom.html?_r=0

http://www.theguardian.com/world/2014/jul/18/isis-islamic-state-issue-ultimatum-to-iraq-christians

http://en.wikipedia.org/wiki/Syrian_Civil_War

http://www.independent.co.uk/voices/comment/iraq-crisis-west-must-take-up-tehrans-offer-to-block-an-isis-victory-9537866.html

http://www.navytimes.com/article/20140717/NEWS08/307170071/Iranian-commanders-front-line-Iraq-s-fight

 

 

 

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The next revolution in Economics: Complexity Economics

I have been enthusiastic about Complexity economics for a while now. And the state of the economy post-2009 only makes me a bigger fan of the whole setup.

Like all people you have mostly heard economic talk monopolized by Paul Krugman and his neo-Keynesian acolytes, or free market fundamentalists. This year’s Nobel Prize shows the divide in the academic community.

If you are someone who studied economics, then you, like me, have been confronted for years with something called « equilibrium » models, and rationality hypotheses. It was like a constant attempt to over-simplify complex mathematical models in order to get incomplete answers and convince ourselves that we are doing a good job.

The recent financial crisis, and the tragic failure of nearly all academic economists to seriously explain what happened and conclude with recommendations, have pushed me to read more about the field of complexity economics, and i got answers.

What is complexity economics?

Complexity economics is a branch of economics that originated in the Santa Fe institute in the late 1980’s. W.Brian Arthurlays the basic framework of complexity economic thought (link available below, did not find the book on amazon though publish date is supposed to be 2013). He defines complexity theory as the following

Complexity economics holds that the economy is not necessarily in equilibrium, that computation as well as mathematics is useful in economics, that increasing as well as diminishing returns may be present in an economic situation, and that the economy is not something given and existing but forms from a constantly developing set of institutions, arrangements, and technological innovations.

While traditional economics constantly searches for the path to optimal behavior under equilibrium conditions, allowing periodical disruptions , complexity economics differs. Instead of assuming rationality or theorizing an optimal agent behavior, complexity economic deals with situations of non-equilibrium.

Instead of studying fixed mechanisms, complexity studies ever evolving exchanges between economic agents in situations that arise consequently to the same agents’ prior actions. The study of economics seizes to be the exploration of a model and its predictive power, but the exploration of the interactions occurring between different levels of the system, and their predictive power. In this sense, complexity economics is closer to political economy than to the classical science of economics, as Brian Arthur puts it

It gives a different view, one where actions and strategies constantly evolve, where time becomes important, where structures constantly form and re-form, where phenomena appear that are not visible to standard equilibrium analysis, and where a meso-layer between the micro and the macro becomes important. This view, in other words, gives us a world closer to that of political economy than to neoclassical theory, a world that is organic, evolutionary, and historically-contingent.

Equilibrium and the world today

Any assertion that today’s world is in equilibrium is delusional. Any attempt to forecast or predict in today’s world can be painted as plain arrogance. Economic theory has not grasped this fact yet, completely.

Complexity economics explains that non-equilibrium is proper to the system itself. Brian Arthur proceeds in the following way: by asking the question « how an agent reacts to a certain problem », traditional mainstream economics assumes non-equilibrium. If an agent were in equilibrium, then why will he alter his behavior anyways?

And as is noted by Brian Arthur too, brilliant economists have an answer to that question. Non-equilibrium states of the economy exist, by they are immediately corrected by the market or another mechanism to return to a static equilibrium point.

The world today however fits a more complexity theory scenario. The two factors the complexity theory takes into consideration to explain the state of non-equilibrium are in full action in our world today: fundamental uncertainty and technological change.

Fundamental uncertainty in today’s post crisis world is ever-present. Let me take one example, the Fed tapering talk. Financial markets all over the world are suspended on a decision by the U.S Federal Reserve to cut on its exceptional low rates and toxic asset purchases.  With the market suspended on the uncertainty of the Fed decision, here is what happened

“As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely,” Lacker, who doesn’t vote on policy this year, said in a speech today in White Sulphur Springs, West Virginia. “This type of volatility is a normal part of the process of incorporating new information into financial asset prices.”

This small episode of uncertainty on the financial markets is the constant for today’s economy. We are sitting on a system so big that a hurricane in the US can trigger a default of a small British bank. The level of uncertainty inherent to the system, in some sectors, like the financial sector for example, makes the state of non-equilibrium a fact that analysis under equilibrium cannot neglect.

Complexity economics

Technological change has been dismissed by traditional economists as happening too rarely to have a  short-term impact on the system. On the long-term, the economic system adapts to tech change and attains a new equilibrium. While this was true in the 20th century, today’s world does not account for that reality.

Small incremental tech changes in the way people communicate, react, share ideas, share knowledge, and even consume have been happening since the early 2000’s, and shaping the way people do things. In a system where interactions between individual agents shape the way the system behaves in the future, changing the nature of interactions between individuals changes the system. In today’s increasingly tech changing world, non-equilibrium is a natural state of the economy.

The economy as a living system

Being under a state of non-equilibrium, the agents forming an economy react through feedback, and the economy gains the property of always being under formation, changing, adapting.

Through experimentation and past experiences, agents adapt to technological disruptions and uncertainties, by producing an ecology, or an outcome, the same experimentation and experiences helped create. Computation is used in the complexity theory to describe the way agents arrive to these outcomes. Brian Arthur lays a practical example of how a complexity theory framework works, applied on the steam engine and railway discovery.

The steps involved yield the following algorithm for the formation of the economy. 1. A novel technology appears. It is created from particular existing ones, and enters the active collection as a novel element.

2. The novel element becomes available to replace existing technologies and components in existing technologies.

3. The novel element sets up further “needs” or opportunity niches for supporting technologies and organizational arrangements.

4. If old displaced technologies fade from the collective, their ancillary needs are dropped. The opportunity niches they provide disappear with them, and the elements that in turn fill these may become inactive.

5. The novel element becomes available as a potential component in further technologies—further elements.

6. The economy—the pattern of goods and services produced and consumed—readjusts to these steps. Costs and prices (and therefore incentives for novel technologies) change accordingly.

Thus the railway locomotive was constructed from the already-existing steam engine, boiler, cranks, and iron wheels. It entered the collective around 1829 (step 1); replaced existing horse-drawn trains (step 2); set up needs for the fabrication of iron rails and the organization of railways (step 3); caused the canal and horse-drayage industries to wither (step 4); became a key component in the transportation of goods (step 5); and in time caused prices and incentives across the economy to change (step 6). Such events may operate in parallel: new opportunities for example appear almost as soon as a new technology appears.

In this example of how a complexity theory algorithm plays out, there is an infinite number of situations that allow the algorithm to continue, as further tech changes will further disrupt agent behavior reviving the algorithm.

Complexity and the financial system

The financial industry, hugely responsible of a lot of what happened pre, during, and after the 2009 crisis, is poorly described by traditional economics. Combine it with increasing technological change shaping communications, the system is in a state of fragile equilibrium. Any small spontaneous event might cause a severe disruption or a crash, and failing to predict that, traditional economics just dismisses it.

In this context, complexity economics, combined with psychology and behavioral economics, is a complete framework to grasp the fundamental forces that shape financial markets.

Instead of assuming that « We Know », and describing « Optimal Behavior », maybe we should simply assume that we do not control what individuals do, however we know the reasons that push them to take a decision. By making this assumption, we stop looking for rational behavior under equilibrium, and start asking questions about what happens in situations of chaos and over-leveraging.

To resume, the complexity theory of economics describes the real world situation in a far more accurate way than equilibrium models, mainstream, and textbook economics. The question is, do we have the humility to simply acknowledge complexity, and not drown in simplistic academic arrogance?

Links

Complexity Economics:A Different Framework for Economic Thought

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European elections results: What you need to know

When I started watching Jean-Claude Juncker‘s post-election speech, I didn’t have in mind that I will be repeating the 37 second video clip 4 times to make sure the future President of the European Commission, the executive branch of the EU, lives on the same continent as me or not? For Juncker, the 2014 European parliamentary elections were a walk in the park. The results of the European elections were a clear win for Juncker’s center right coalition. Forget the observers that signal a push by conservatives and eurosceptics that threatens the federalist dogma in Brussels, they are delusional!

If you add up the « pro European » parties scores across the EU, then Juncker is right. The EPP in addition to the ADLE and the Social Democrats have a clear majority in the EU parliament. But this is a typical remark of a Eurocrat, totally disconnected from anything closely related to political reality.

While Juncker is right on the surface, if you breakdwon the campaign and the results, the reality shows a completely different picture. For example, does Juncker now that at least half of the French U.M.P, the center right, thinks he has no chance of becoming the Commission’s President? Does he know that Henry Guaino, Sakrozy’s right arm, and the tenant of the Gaulliste tradition on the French right, publicly called for voting against the EPP candidate, Alain Lamassoure? Is he aware that Laurent Wauquiez, another tenant of the Gaulliste tradition, and a rising star within the French center right, called for going back to the Europe of 6 structure, backtracking on all European expansion treaties, and clearly taking an anti-federal stance?

Let’s go to the left. Is Juncker aware that the French left, ranging from communists to the United Left member parties, Melenchon for example, are fundamentally against his policies, and see him as the symbol of Troika imposed austerity on southern Europe?

No, Juncker thinks he is the people’s hero, and in apparent disconnection from the political reality of Europe, is claiming a political victory in what seams as a clear apparent debacle of pro EU establishment parties. To quote the excellet ZeroHedge, commenting on Juncker’s post election tweet:

Meanwhile, back in « Old United Europe », it seems nothing has changed:

Without knowing the final result, we know that the @EPP has come out in the lead+ that I am fully entitled to become Commission President
— Jean-Claude Juncker (@JunckerEU) May 25, 2014

Seems a good starting point for the European elections results breakdown!

European Elections Results: France and Germany

Before presenting the results of the EU’s locomotives, France and Germany, I would like to congratulate this elections biggest winners. And these are abstentionists. Voter turnout, as usual for EU elections, proved to be disparate between countries, but generally low, marking a democratic discontent with the whole way EU politics are being handled. More than half of the European electorate just doesn’t care how the EU is managed, and this a sad fact no-matter your political affiliation.

Let’s get back to dear France. What was expected happened, even though the last week on the local political scene witnessed a cheap manipulative propaganda projecting that the Front National will not come ahead of the vote, the traditional right U.M.P saving what could be saved in the last sprint before the finish line. But surprise surprise (or not), Marine Le Pen came out victorious in a historic blow to the center right and the total destruction of the French Socialist Party as a credible European alternative. The last minute talk of a weak FN as the campaign advanced was apparently all mainstream reassuring talk. Manuel Valls, the French Prime Minister, described the Front National’s score as a « political earthquake ».

Marine LePen campaign slogan, european elections results

Marine LePen

In Germany, one of the rare European nation states to survive the 2009 financial crisis without any particular pain, Angela Merkel’s CDU won in front of the Social Democrats, with a score slightly less than the previous elections. This score however is the final blow for Martin Schulz‘s bid to preside the next EU Commission. Noteworthy though is that German Eurosceptics of Alternative for Germany have exceeded expectations and reached a 7% score, allowing them to send representatives to the European Parliament.

The democratic deficit

Anger towards the Brussels based political establishment that led the Eurozone throughout the Financial Crisis of 2009 is high, extremely high, and the European elections results point to this fact.

Let’s take Italy for example, where Renzi’s PD is estimated to obtain approx 30 % of total votes. The fact is however, that Renzi leads Beppe Grillo’s Five Star Movement, a deeply populist and anti establishment civil and political movement.

In Italy, the anti-establishment Five Star movement, headed up by former comedian Beppe Grillo came in second place. The party has campaigned on taking Italy out of the Euro and giving Italians back their « monetary, economic and cultural sovereignty ».

Another example is Greece, where Alexis Tsipras’s radical left coalition managed to win the poll, but with the government coalition made up of the center right and left winning the cumulative vote. Neonazis of the Golden Globe will be sending 3 proud neo-nazi deputies to the EU parliament. Yes, I’m sorry if it’s too much accusations, but I mainly blame austerity inspired policies for that one too.

The far-left Syriza party in Greece capitalised on the country’s dire economic circumstances and high unemployment to make the call for change. Party leader Alexis Tsipras said we have a « political agenda that cannot be ignored » in the EP.

Alexis Tsipras, another Europe

Alexis Tsipras

Italy’s and Greece’s examples show a fragile equilibrium in countries expected to have long-term and stable economic and social policies by their lenders. The Portuguese one confirms this observation. In Portugal, the abstention level reached 66 %, with the current governing coalition that led 3 years of austerity based policies losing to the main center left Socialists, the country’s main opposition party.

I would comfortably conclude these southern country observations by linking abstention and anti-establishment vote to austerity inspired policies. Wherever the EU and the Troika have implemented austerity inspired policies to « save the Euro » and the national economies, the result has been a political landscape so unstable that it makes those countries impossible to govern, reform, or even manage through a second financial crisis if one hits us.

We are seeing a confirmation of the increasing democratic deficit between the citizens of the EU, and the institutions and leaders that are supposed to represent their aspirations.

The UK already out

Let’s face it. Neither David Cameron nor the Lib Dems had any appetite to defend the European project on British soils. And if you add to that Nigel Farage’s charismatic personality and wild political beast nature, the battle was already lost. So it is not with a lot of surprise that UKIP performed just as expected, being projected to win the majority of British deputies to Brussels.

Farage campaigned on a strong Eurosceptic stance, leading a raging campaign against intra EU immigration, and the loss of national sovereignty to unelected insitutions. The answer of these institutions to Farage and his campaign are significant of the arrogance with which Eurocracts deal with Euroscpeticism. Not once has Nigel Farage been properly debated with by a European technocrat. Instead, he has been labeled racist, xenophobic, nationalist, and all the thought crimes mainstream media indicts you with as soon as your opinion deviates from the established truth.

How much Farage will be influent in the EU parliament heavily depends on the alliances he is willing to conduct, and a UKIP-Front National alliance would certainly be a strategic boost to anti establishment parties. For now, his influence is mostly noticed on the national level, where he is confident of winning an opt-out of the Euro referendum if David Cameron has the political courage of submitting one to the people’s vote.

The generational and geographic deficit

The EU is divided, and the divide is on two levels, geographic and generational.

When it comes to the generational divide, there is a clear difference, in political terms, between the old German retiree voter, who is voting for more public expenditure control, high interest rates, and a overvalued Euro, and the young Spanish voter, victim of strong and chronic unemployment. The Spanish voter of course is voting against German-Troika imposed austerity measures, low interest rates, and a undervalued Euro that frees up the country’s export structure. I call this the generational divide.

We can additionally see this divide on the national level. There is a clear difference in the voting preferences of the young generation, who is promised years of unemployment, high taxation, and 68 year careers if they even dare to dream about retirement, versus the old generation that is enjoying it’s retirement plans at 50’s and early 60’s and politically defending their privileged position in society by voting.

Another European divide is geographic. This divide is illustrated by the current Ukrainian crisis. European elites and the Brussels established politicians have clearly and undeniably taken a rapprochement stance with NATO and American foreign policy. For those who love European history, remember De Gaulle warned of this exact situation? Oh Mon Général, you are missed.
The nation states that have joined the EU through the enlargement policy, who for the most are post-soviet union states, see this rapprochement with NATO as vital for their national security, their foreign policy being dictated by World War memories and current fear.

The countries of Southern Europe and Germany for example, face a public opinion strongly against any conflict with Russia, and for an inclusion of Russia in European politics in a more efficient manner. The majority of southern europeans are against a rapprochement with NATO, against an alignment with American Foreign policy objectives, and for a dialogue with Russia. The recent attempts to impose sanctions on Russia over the Ukraine situation, and the failure to enact even the legal minimum sanctions that represent an offensive stance, are proof that Europe is anything but united when it comes to Foreign policy matters.

How can a Federal union survive in such divisive and unclear waters, I do not know. Surely some enlightened technocrat in Brussels has an answer.

Conclusion: Opposition from within

As the conservative Pat Buchanan puts it

What are the identifying marks of these populist parties that have sprouted up now in almost every European country?

There is first the rejection of universalism and transnationalism, and a reversion to patriotism and its songs, symbols, holidays, history, myths and legends.

To peoples such as these, the preservation of the separate and unique ethnic and cultural identity of the nation supersedes all claims of supranational organizations, be it the EU or U.N.

This sentiment is reflected not only in fierce resistance to further integration within the EU, but in visceral hostility to further immigration from the Third World, Islamic world or Eastern Europe.

These people want to remain who and what they are.

Even the Swiss last winter voted for an initiative of the People’s Party calling for reintroduction of quotas for immigrants from the EU.

A second telltale sign of the new populism is traditionalism and cultural conservatism, reverence for the religious and cultural history and heritage of the nation and its indigenous people.

That victory in the recent Eurovision contest of Conchita, the bearded transvestite drag queen who performed in a gown, though celebrated by much of the European press, sent a message to millions of traditionalists that this is no longer their culture.

Another aspect of the rising populist right, as the New York Times notes, is a grudging admiration for Russia’s Vladimir Putin.

Why? Putin not only publicly rejects the moral relativism of the West, under his guidance Russian social legislation is being consciously rooted in traditional Christian concepts of right and wrong.

Putin is the anti-Obama, moving to occupy the cultural-moral vacuum left by America. As we celebrate multiculturalism, LGBT rights, and abortion on demand, Putin repudiates Hollywood values.

This analysis of European conservatives and anti-establishment political parties by Pat Buchanan is a precise description of the reality I have been observing since the 2009 crisis. There is an evident disconnection between mainstream media, the political elite, and the peoples of Europe, you know those human elements that don’t live in cities, aren’t swaggy and culturally « included », the young unemployed, the local tradesman watching an un-elected Commissioner negotiate his production standards with the American government in complete secrecy, the traditional families seeing the LGBT lobby imposing social norms without the slightest consideration to their existing social structures, an undemocratic response in 2009 to the financial crisis, that consisted of saving a currency at the expense of a whole generation of young southern Europeans lost forever.

Acknowledging these factual elements would have been helpful for the pro-EU politicians, bringing them closer to the people, making their message audible, and opening new ways for future EU integration.

With the arrogance and assumed elitism on display since the beginning of the campaign, I’m not that hopeful that solving the democratic divide is even considered as an objective by the European establishment. Isn’t it Herman Van Rompuy that declared that the EU’s enlargement had no backup from European citizens, but that it had to be pursued anyways?

You reap what you sow, Mr Van Rompuy. Now the opposition to the European integration has started from within, and the European elections results are the last warning signal given by those forgotten populations the EU has constantly forgotten and denied democratic representation. Now the European elections results are a painful reminder not to snob the people.

The result will not be a breakdown of the EU in the short-term, but a breaking up of the quasi religious dogma that ruled on Brussels politics.

Links and noteworthy details

Emotional: Jean-Luc Mélechon, leader of the French Front de Gauche, in tears after being informed of Le Pen’s score

Centre-right wins the most EP seats, but anti-establishment parties score well

Changing Continent: European Parliament Elections 2014

The Specter Haunting Europe


The EU Is Safe For Now, But Its Future Looks Terrible

Here’s The Good News For Markets In The European Parliamentary Elections

Euroskeptics Surge: Live Results From The 2014 European Parliament Election

Political ‘Earthquake’ Hits France And The UK

Portugal’s main opposition Socialists win European elections

The Eurosceptic Union

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Ukraine Media War Intensifies

When it comes to Ukraine, you need to chose. Today’s buzzing intellectuals and pundits « take sides ». They either defend democracy thriving Kiev or emphatically cry outrage against American led destabilization of Russia and its influence sphere. Axis of evil vs. The Forces of Good. This friction between the two sides has turned information seeking during this current crisis into a difficult intellectual exercise. Welcome to the Ukraine Media War.

In an usual move today, at least at a diplomatic level, John Kerry, called the state-funded network Russia Today a « propaganda bullhorn », taking the media war to the next level.

 

Kerry goes further in describing RT as Vladimir Putin’s platform for making his fantasies become reality. It is not surprising that, in the age of digital media, information is where the battle is happening.

Why attack the media now?

To put Kerry’s attack on RT in context, one must read his words carefully: « Putin’s fantasies ».  Since the beginning of the Ukrainian situation, the real issue has always been a persona problem with Vladimir Putin. He is painted as ruthless dictator warmongering around poor baltic and slavic people looking for land, children and cookies, if available. While this strategy might have worked with Saddam Hussein or Assad, dictators in their last days governing a ruined-by-sanctions economy, Vladimir Putin is just light years away from a similar situation. He is elected, extremely popular within his own population, and is policing one of the most difficult countries to manage in history: Post Soviet Russia.

Now I’m no personal fan of Putin. His record on civil liberties is poor, and his economic reforms are insufficient. He also is a former KGB agent, which is always a reason to approach a similar personage with caution.

But comparing Putin to Hitler? The Godwin point in the Ukraine Media War has been attained ladies and gentlemen.

For former Secretary of State Hillary Clinton, Putin’s actions are comparable to Hitler’s during WWII. This echoes opinions expressed in French media calling the European « inaction » in Ukraine another « Munich » Agreement ». Media are painting a « Hitler » picture of Putin, and this detail is blurring any calm geopolitical analysis of the Ukraine situation.

But this battle isn’t an easy one to win for Western Media. RT are modern, their YouTube channel rocks. Their journalists are competent. Their frontline reporting is precise. Their social media strategy is one of the finest I know. Painting a « Hitler » picture of Putin is not that easy when the other side’s media outlet is RT. And most of all, they offer a DIFFERENT news perspective. Someone singing a false note in the media chorus. Good.

Instead here I am analyzing media communication. You could have thought that we were talking about the people of Ukraine, their well being, their stability, their future. Nope, it’s a media war against Nazi Putin wanting to occupy Ukraine.

I just have one issue with the Nazi point. The Nazi’s are in fact in Kiev (Google Svoboda, should be easy; judge for yourselves), not eastern Ukraine. Something mainstream media failed to mention until recently.

From a purely news point of view, you might think the inclusion of Nazis in a European government for the first time since World War II might make for a good story. But that would go against the preferred American narrative that the protesters in the Maidan were peaceful and idealistic – and that they were set upon by the evil Yanukovych who simply fled because he could no longer withstand their moral pressure.

So, in the 21st century, the age of digital enlightenment, why again are we hiding chunks of info from entire populations, drawing a « one size fits all » description for all international crises? My former professor Doctor Richard Rooke asks the same question, in far better words than mine

The access to information, even gossip, is no longer a restricted game in the digital age.  From local newspapers to cross-national broadcasting, there is open trumpeting across the e-platforms: the Twitter effect is one of the best examples. It is not that Twitter is more truthful than anything else, but it has opened the controlling portals to the managed text, to a wider community beyond the affiliated, and controlled, often ‘stay-at-home’ editorial journalist-politician set, and this is inherently powerful if not disruptive.

 

Clean your own backyard

Now get me wrong. RT is doing a lot of propaganda on the Ukrainian situation. A lot of pro Russian pundits have done some bad fact checking too. For example, the Sapir-Meyssan affair, that you can read here in French.

However, so is France 24, the BBC, the NYT, the Washington Post, and any media I can think of.

In this media below, Aude Lechrist, a France 24 question, asks the following question to a Russian expert:

Why does Russia hate the European Union?

Now this is France 24, funded by taxpayers money, supposed to portray an independent and professional view of international relations. So how do we end up with the stupid, simplistic, question, do they hate us? Really Miss LeChrist? Russians, dear failed journalist, are as European as the French are European, as Charles De Gaulle always considered. The only hatred between the Russian and European people is political and media orchestrated.

 

In the same show on France 24, Caroline Fourest is present to denounce « Russia’s lies and propaganda ». Is Caroline Fourest an expert in international relations? Nope. An expert in Russian affairs? Nope. She is nothing more than a left-wing, pro FEMEN intellectual. What an expertise (again, with my money).

Ukraine media war Obama Putin

The threat of sanctions (LOL)

And you dare accuse RT of being a propaganda bullhorn, okay, fair enough. But why does CNN diffuse in Arabic then if not for propaganda reasons? Why does France 24 diffuse all over Africa in French if not for propaganda reasons? Why does Al Jazeera diffuse in English, if  not for propaganda reasons?

Mainstream Media Mirage to hide the real questions

The real question, as Russian affairs expert professor Stephen Cohen puts it, is the geopolitical crisis. He describes it as another Cuban Missile crisis in a video I’ve linked below(watch the documentary by the Kennedy foundation if you have time, great stuff). Anyone who has read even the smallest summary of the Cuban Missile crisis knows that its equivalent in the 21st century could be devastating.

Simply put, there is no earthly way that Russia might allow anyone, not even the Chinese, to establish an influence at its borders. Putin has already declared that the fall of the Soviet Union was the biggest geostrategic catastrophe of the 20th century. He did not say that from a sentiment of nationalistic nostalgia. He said that thoughtfully, as a fact. The fall of the Soviet Union left a region in chaos in more chaos. The Soviet Union should have fallen according to Putin, but he does not share the « spread chaos » everywhere strategy that has been applied by the West towards the former Soviet Union countries.

The strategy of the West has always been Russia’s destabilization around the satellite states surrounding its borders. Putin has offered concessions to Obama and the west, putting him under fire from Russian nationalists. How has been repaid? Constant provocation. On a diplomatic level, there’s only but a small room for dialogue anymore.

And media war is making that room for negotiation smaller and smaller. When it disappears, we might have armed conflict at the doorsteps of Europe. With the European establishment supporting the first government on the continent that includes proud Neo Nazi members.

I witnessed Iraq

Yeah, Iraq, the biggest media lie in history. Not on single informed person believed Saddam Hussein had nuclear weapons. Scientifically impossible they said. I was still young then, so my digital awareness was still limited. But when I started my college studies, I read about the Iraq war. I read how thoroughly mainstream media check the info handed to them by the establishment. The Ukraine media war is offering striking similarities.

While some real journalists are struggling to report info from critical battlegrounds like Syria for example, others are squandering the prestige of comfortable reporting. When you write an article from your New York office, make sure you check your info. When you are speaking as the spokeswoman of the Department of State, don’t present evidence based on the observation « They Look Russian ». The truth surely is worth more than that in the digital age.

No one denies Russian intelligence and special forces are present in Ukraine, but, is this the whole picture? No.

CIA Director John Brennan went to Kiev a week ago, though he sought to hide his visit from the public, as the Western-backed regime in Kiev prepared its crackdown on the eastern Ukraine protests. British intelligence has admitted that its agents are combing east Ukraine. Why is the dispatching of spies to Ukraine by Russia more threatening than the appearance of MI6 or of Brennan, who has played a leading role in running a global network of torture camps and a program of drone murder?

Why is the CIA allowed to operate and advise West Ukraine, and Russian intelligence denied influence in Eastern Ukraine? Interests, international politics.

Allow me not to be in a personal state of war with Russia, nor with the Russian people, nor with anyone to the matter of fact. At least not based on unverified media reports and mass statist propaganda.

The best conclusion would be the words of Doctor Rooke:

Are words mightier than the sword? No, because they are inherently, socio-linguistically, philosophically, by their nature words of ‘spin’ – but quality newspaper and other forms of journalism add to our understanding by separating wheat from chaff. A bridge between academic and journalism also helps, which, at its best, supports and enhances freedom of speech. But the popular press, and that includes some aspects of national public broadcasting – which in itself is always limiting, is less substantial, and here lies the problem for reasonable debate about the role of the media in the modern age for modern audiences, especially for the e-aware or the ‘netizens’ of the world.

Let’s hope the « netizens » of the world do an honest and peace seeking reporting job of the Ukrainian situation.

 

Links and Videos

Frontline: the role of the media-a defence.

Stephen Cohen on the Ukraine situation

One of the reasons I love RT, Cross Talk, a great show. You can go out on RT and call Putin a dictator, autocrat, all you want, you will still get a chance to speak. Try doubting Obamacare on MSNBC for example (LOL).

Look how Amanpour loses it. CNN’s credibility on the Ukraine is close to 0. Amanpour was a great reporter once. Now she is on a « WonderWoman will save the world for ya » mission.

Pourquoi Vladimir Poutine est si populaire en Russie

La Russie envahira-t-elle l’Ukraine

Ukraine: Finissons en avec les discours de guerre froide (Fondation Copernic)

Global Research: The New York Times purports to provide definitive proof that russian spies are active in eastern Ukraine.

Ukraine’s Neo Nazi imperative: the mainstream media’s one sided propaganda

 

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Digital Politics Censorship: Lebanon and Viber, Reddit and Snowden, France and Twitter

Tech companies are changing the way people communicate. And guess what, governments are losing the control battle. Digital politics censorship is not a game you wanna be engaged in unprepared.

A few months ago, when I wrote why Edward Snowden was « my hero », and why he should be yours too, I reckon I was scared of the potential backlash. Well not really scared, just doubtful of the outcome of the whole PRISM revelations sequence. It’s not that I did not believe the gravity and the scope of what Snowden revealed, I was doubtful of the world’s perception of the story.

Now that The Guardian and the Washington Post received a Pulitzer and official recognition for the terrific journalistic job they’ve done revealing Snowden’s documents, I’m guessing public awareness concerning censorship and privacy is gaining traction. Not too late. And certainly necessary.

NSA outraged ad Snowden's revelations-digital politics censorship

NSA outraged at Snowden revelations

Mainstream media were already labeling Snowden a traitor, a danger to American national security, a « coward » for fleeing to Hong-Kong and then Russia. All over mainstream media top notch intellectuals were already lecturing Snowden on alternatives he had to fix the problem, if any, through the system. But the whole system is pushing towards more censorship, so what option did Snowden really have?

Lebanon and Viber’s case

Now the story in Lebanon is not that different. Lebanon is a country with a social fabric  heavily dependent on emigration, with an imposing diaspora of some 12 millions Lebanese living abroad. Now that figure is the legendary figure that circulates in Lebanese circles, but the number dates from the 90’s, and surely is closer to 15 million.

This trait of the Lebanese social fabric, when conjugated with Lebanon’s love of communications and social expression, have made Viber, the free messaging and voice calling app, a huge success. As a Lebanese living abroad for example, I use from time to time Viber as a mean of communication with my parents and with friends back home. Viber is a serious cost saver for the Lebanese population, and it’s familiarity as a service have made it one of the most successful apps for Lebanese smartphones users.

There’s one problem however: Politics.

Viber’s founder and CEO, Talmon Marco, is an Israeli-American that formerly served with the Israeli Defense Forces. Lebanon and Israel have been in a state of war since 1948, and explaining this whole conflict again is not my subject and would take pages of geo-strategic analysis. But as news of the background of Talmon Marco broke, the Lebanese government rushed to BAN the service altogether since 2012.

Was that a smart move?

Viber, and all voice-over-IP (VOIP) services for that matter, have been banned in Lebanon since 2012, but enforcement is weak and the apps remain extremely popular. Workarounds for the ban are published widely on the internet, so users have typically been able to stay one step ahead of the authorities.

Like almost every government move, we are at the peak of stupid behavior.

Lebanon has one of the most expensive prices for a minute of mobile communication. The sector has a technology lag that puts the telecom sector in severe agony and the country’s brightest elements leave at the slightest opportunity of working abroad. You have here an environment strongly incentivizing the use of free messaging apps like Viber. Banning the App altogether in a similar environment is fundamentally stupid, a move disconnected from the essence of the digital politics world.

So the news that the Lebanese government has dramatically failed in enforcing the ban is of no surprise to me or any fan of the digital world. Why do governments fail in controlling digital politics?

Freedom (Social Media and the arab Spring)

Social Media and the « Arab Spring »

The digital divide

Michael J. Jensen and Eva Anduiza define the digital divide by the following:

« (..)the digital divide refers to the series of stratifications concerning access and skills in using the internet as well as its opportunities for use and integration into the daily life of a country and its politics. »

Put in other words, the digital divide represents how much digital politics can develop and reach through in the social environment of a certain country, or the globe as a whole. It underlines the possibilities of certain social categories to play a role in digital politics.Internet penetration in the country, the ability of its people to harness and adapt to digital changes, all determine digital politics’ scope and reach through population category.

The term Digital divide is used to describe a gap between those who have ready access to information and communication technology and the skills to make use of those technology and those who do not have the access or skills to use those same technologies within a geographic area, society or community. It is an economic inequality between groups of persons. (Wikipedia) 

Jensen and Anduiza state however that the digital divide is not the main factor in determining the political use of social media. A conjuncture of the digital divide, the institutional structure, and the mainstream media structure appears according to their research to have a more explanatory power.

The Digital Divide illustrated

The Digital Divide illustrated

In the cases that I will mention however, the digital divide has played a big role. I believe that the digital divide is exactly why governments will systematically fail in any attempts of censorship or control of digital communications, let alone digital politics.

Cases of digital politics censorship: France and Twitter

Social unrest and tensions in France have peaked since the venue of Hollande’s socialist government. In a year 2013 that witnessed the legalization of Gay Marriage, in a climate of severe economic difficulties and societal questioning by the population, France requested the removal of a record 87 percent of all tweet removal requests worldwide (Hello Turkey…).

The global total for that period was only 365, which means France accounted for a whopping 87 percent of all the requests.

One explanation for the number of demands made by French authorities centres around the number of homophobic tweets that were made in the year that France legalised gay marriage.

France has a free speech tradition fundamentally different from the American one for example, where Freedom of Speech is much more tolerated, even concerning hate speech. France’s restrictive legal framework for speech monitoring evokes « pressing social needs » and « protecting the Republic’s values » as probable causes for limiting freedom of speech. But is this the most efficient way of fighting the hate speech in digital politics?

Sadly, traditional politicians respond in digital politics exactly as how they would have responded in traditional politics: Force and Violence.

As Attorney Marie-André Weiss puts it in this enriching article:

Instead of censoring these tweets, the French government should interpret them as an urgent sign for the need to better educate the public, especially young people, about the value of diversity and open-mindedness. For example, France may soon allow persons from the same sex to get married and to adopt children, which has sparked debate and public outcry. The French government’s mission should be to continue to put such inclusive policies into place, and to promote diversity in a society as open as possible. This is where the “honor of France” must be, not in censoring speech.

Don’t get me wrong. I’m not saying nothing should be done to fight hate speech. But removing tweets? Censorship? In the 21st century? After the whole Snowden thing?

What should be optimally done, is using the digital nature of digital politics to respond and shape behavior(if you think that’s still possible, which I strongly doubt). As with the Lebanese government’s ban of Viber, France’s Tweet removal requests solved practically nothing, made the government more unpopular and elitist, and increased defiance towards the mainstream system of politics. As if the country needed that with 20 percent of people already voting for far-right political parties.

The digital divide here plays a crucial role on the digital politics scene. The aptitude of the French youth population to adopt the internet and the digital world as a platform of expression is amazing. The government’s view of social media and web communication however, is pretty much that of the early 20th century, let me demonstrate it for you.

Last February, the Elysée palace announced that Claude Serillon will manage François Hollande’s digital politics communications. For a subject needing a fresh young perspective, and an innovative mindset, Serillon is a joke of a nomination. He s a very respectable man, but a man of communications of the 20th century, a news anchor that witnessed 20th century history. As soon as the news of his possible nomination broke out, Twitter reactions led Hollande to back off this ridiculous nomination. This is just an example of how the digital divide empowers social groups ready to embrace the digital world, and leaves governments trying to control on the sidewalks of history.

Reddit and Snowden/NSA (and any scary word you might think of)

Now this news broke out on April 14. I somehow missed it (migrating this blog to my own domain has a lot to do with it).

Say what you want about Reddit‘s r/technology, one of its most popular forums. Just don’t say « NSA, » « net neutrality, » « Comcast, » « Bitcoin, » or any of the roughly 50 other words that will secretly get your post deleted.

Another censorship attempt…noticing a trend?

Reddit is practically an online interactive newsstand that offers users the opportunity to vote share and offer users a chance to have all the web’s news on one page. Technically, Reddit should be killing mainstream media, especially newspapers. If not killing them, at least revolutionizing the way they do business.

Instead, Reddit finds itself doing exactly what Mainstream Media do, censorship:

A blanket ban on certain words in headlines may do r/technology subscribers a disservice. After all, « newsworthy » and « controversial » tend to dovetail together; why wouldn’t people interested in technology read about Bitcoin? About Senator Ron Wyden, likely the most dedicated defender of Internet freedom in Congress? About Internet service providers like Comcast and Time Warner?

How did we arrive to this point, in the United States of America , land of Freedom of Expression, home of the internationally recognized set of democratic best practices called the US Constitution?

To resume, Reddit filters « politically sensitive » keywords as « Snowden » or « NSA » and dismisses the articles submitted under these keywords. How an actor of the digital politics world engages in such censorship leaves me bedazzled. I mean freedom is the mantra by which tech companies live and die. Just check how much Google and IBM lost after the NSA scandal (too bad for people who still think the NSA revelations were not a scandal, good luck living in the past).

Governments and digital politics censorship: they just don’t get it.

In a remarkable piece written by Jon Evans in May 2013, a provoking question is asked:

Is The FBI Dumb, Evil, Or Just Incompetent?

I would advise reading the whole article, as it describes exactly the conclusion I want to attain at the end of this post. Digital politics is a game changer. Using old recipes for understanding this new political communication environment is ineffective to say the least, and dangerous if we want to be honest about it:

So we’re left with the last option: the FBI is simply technically incompetent. Unable to come to terms with the new world of technology, and take advantage of the many ways in which new technology can aid their investigations in new ways without turning America into a panopticon, they’re instead still thinking inside the box of 20th-century wiretapping, and insisting that tech companies implement a counterproductive, expensive, and ultimately pointless toolkit…purely to satisfy their own blinkered lack of imagination.

In a country with a unique history of individual freedom, that an agency like the FBI, with all the resources available, fails to create a strategy and a platform to fight terrorism USING the web, is beyond my humble thinking. We are talking about the country that sent the first human-being on the moon’s surface. Now America’s agencies are responsible of setting up a surveillance system as ineffective and as harmful to democracy and transparency as the Chinese one, for example:

In order to claim this empty chalice, the powers that be will require a surveillance system that could be abused by the very kind of people it’s supposed to be used against. Could, and almost certainly would: if you build a tool that can be used malevolently, then inevitably it one day will be. Consider how Google was hacked in 2010 by adversaries who used the intercept facilities built into GMail – at the government’s insistence – to access the private email of Chinese dissidents, and:

Digital politics; It’s all about transparency

Digital politics may not be the determining element in any political strategy today, on its own. However, it’s not supposed to be just an element. It’s supposed to replace the old system of political communications, and shape the new ways people interact with their political environment. Governments are trying to control that change through the three factors Jensen and Anduiza talked about. There is one element they don’t control however, or can’t control on the long run. The digital divide.

The digital divide between governments, mainstream media, and the new generation of heavy social media and information technology users is crucial for those in power.

Nevertheless, internet use may continue to play a particularly important role as it enables individuals to connect to a vastly wider array of communication flows that serve as alternative sources of information, organisation, and value structures than are otherwise available. At a higher level of abstraction, these communication and information practices facilitate the invention of new political identities not linked to local institutions or civil society but oriented towards the advancement of political projects which link individuals to emergent collective identities.

You’ve read right. Digital politics encourages individuals and social groups to discover new forms of political identities. It is understandable that the tenants of the current political identities (status-quo) are panicking.

If those in power do not fully understand that if they don’t convey transparency and honesty, they will lose every-time they engage in digital politics. Maybe not in the short-term, where mainstream media are still influent, but surely in the long run.

Read more:

Technology and Politics in Context (I strongly advise buying this article, to support the authors’ effort on digital politics research)

Reddit mods are censoring dozens of words from r/technology posts

Is The FBI Dumb, Evil, Or Just Incompetent?

Claude Sérillon ne dirigera pas la communication Web de l’Elysée

Reddit in Turmoil Over Censored Posts

ما لا تعرفونه عن برنامج المحادثات المجاني “Viber”!

RT the Hate: France and Twitter Censorship, Part Two

THE SNOWDEN PULITZER

Twitter: France leads world in battling abuse

What Is Reddit?

Japan’s Rakuten says to buy Viber Media for $900 million

Rakuten Drops on $900 Million Deal to Buy Viber Message App

Rakuten CEO Aims for 2 Billion Users After Viber Messaging Deal

An Israeli company delivers Lebanese citizens from the clutches of its own government

Reddit removes technology from default subreddits following censorship row

 

 

 

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France and Germany diverging: EU economic problems continue

Whenever I want to hastily evaluate how Europe is doing economically, I take a macro look at the French and German economies. The famous « couple Franco-Allemand ». Germany and France, are Europe’s locomotive, political scientists like to say. They pull the rest of the Union behind them. So if one of the two countries is stalling, the other needs to pick up the traction, or else we have a big momentum issue. Because of this momentum issue, the EU faces a situation today where the economic problems are here to stay.

That lagging country is France. After a period of local elections, political bickering, name calling, and a pinch of populism, the country finds itself facing raging issues. The entire EU is looking at France for a sign of structural reform, be it its OECD record high public sector as percentage of GDP, or its rigid labor market. The president François Hollande finds himself in a unique position in French history as the most unpopular president ever.

The personal approval ratings for French President Francois Hollande have hit a new low of 18 percent, compared to 58 percent enjoyed by his new Prime Minister Manuel Valls, according to an opinion poll from Sunday.

He is summoned by Brussels to present his deficit reduction path. His party, the French Socialists (Parti Socialiste), took a historical blow in  April’s local elections.  As a political response to the urgency of the situation, he designated Manuel Valls as his new prime minister, in a move that puts French’s social democrats, or the liberal tendency of the French left, in power for the first time since Michel Rocard.

At the same time, the contrast in Germany is staggering. The German Bundestag concluded a week of debating the Federation’s budget. Merkel’s government presented for the first time since 1969 a budget in equilibrium. This technically means Germany is contracting no debts, paying simply what it owes. Merkel seized the opportunity to congratulate Wolfgang Schauble her finance Minister

Merkel herself praised her finance minister, Wolfgang Schäuble, for submitting a budget in which the German government would take on no new debts. Should the predicted figures bear out, it would be Germany’s first such budget since 1969, fueled in large part by record tax revenues.

Situation getting critical for Hollande

Co-president. This was one of the headlines in the French press following Valls’ nomination . The President is in a very weak stature. The nomination of Manuel Valls is more of a strategy that has one objective: save what still can be saved from a catastrophic sequence of political management. I’ve written earlier about Hollande’s early 2014 shift towards a more liberal pro-market shift in economic policy. This shift followed two years of excessive taxation of the French enterprise structure that resulted in a series of popular revolts end of 2013.

Manuel Valls

Finding himself facing record high opposition, Hollande is playing his last card.  Valls, a politician previously called « Baby Blair » for his admiration of the policies of former British PM Tony Blair, is often compared to Sarkozy in his pragmatic, proactive decision-making. Hollande, in a follow-up with the local elections results, which led to a crushing victory of the U.M.P, the french traditional right, designated Valls who is very well seen on the right of the political compass.

Mr Hollande turned to Mr Valls, from the right of the Socialist party, after a crushing defeat for the government in local elections last month. The former interior minister has consistently been the most popular member of the government since Mr Hollande was elected in May 2012.

Publicly, Valls is well perceived, and his early appointment installed a climate of confidence and discipline in Hollande’s management system. However, Valls arrives at the head of a government managing record high unemployment figures, coupled with record low growth figures. Add to that the political resilience of the population, you got yourself an explosive mix. Giving Valls the reigns of the country’s executive branch, in such troubled times, is a tricky move. No matter the good will and the confidence effect, Valls has no cushion to operate freely and efficiently. To resume, it’s a bit too late for innovative policies and time for crisis management.

The EU elections

No one doubts that the amplification of the EU’s economic problems is giving nationalists all over the continent momentum. People are increasingly turning towards politicians not entangled in the mainstream/europeist view shared by the traditional European left and right. The upcoming elections are going to be, as usual, a referendum on the Euro question. The single currency will be the center of the debate. Southern European economies are struggling to reignite the growth engine, seeing a lot of industries leaving their territories towards the east. The Euro at the same time, is flirting with the 1.40 critical level against the USD. There is a lot of friction between European economies, and the current European situation does not look like that of an integrated Federation.

In this current situation, in a Union of disintegrating economies, the nationalist/euroscpetic vote will emerge as the winner. All governing parties all over the EU are facing populist votes, making the political situation as unstable as the economic one. Here is Matteo Renzi’s current EU elections related problem for example:

The anti-establishment Five Star Movement (M5S) of comedian Beppe Grillo, which is courting recession-weary voters with promises to « send home » all professional politicians, hold a referendum on eurozone membership and withdraw from austerity pacts such as the Fiscal Compact, is the biggest threat to the PD.

When the crisis erupted and Europe’s economic problems surfaced, analyst were unanimous: The problem is a single currency union with absolutely no fiscal or economic coordination 6 years into the crisis, the problem is still here. How is Europe in a better situation? I don’t know. The electorate doesn’t know. Only a few people at the European Commission and a few chief economists see the amelioration in the European economy. Meanwhile, the current economic debates remain.

While some analysts see the EU economy as surely recovering, the persistence of the original problems tells a different story. Mohamed El-Erian for example, one of the prominent voices in the economic landscape, says the following about the EU economy:

With risk spreads compressing markedly, the region’s financial crisis has been relegated to the history books, and the region is again attracting the interest of foreign investors. Consumer confidence is recovering as well, and businesses are again looking to expand, albeit cautiously. Economic growth has picked up and unemployment, while still alarmingly high, has stopped increasing in most countries.

El-Erian, is clearly linking a run by institutional investors for European bonds to a recovery. He is assuming that the reason institutional investors are back to the European market is a perception that the crisis is behind us. However, in a small paragraph, he underlines the main issue in an economic recovery that the EU has not tackled yet.

Europe badly needs all of this good economic and financial news. The region has only just exited a recession that has devastated many livelihoods. Far too many citizens are still trapped in long-term unemployment, while a distressing number of young people struggle to secure a job – any job.

So we are approaching a parliamentary election, with a population in long unemployment lines, and an explosive political climate. I fail to see the recovery El-Erian is talking about. Of course if you look at the macro figures, you can scratch 0.2 points of growth here, low interest rates there, the stock market reaching record highs, and you can turn all that info into good news. The real economic indicators however, people, are just not doing that good.

"I won"t hire you because you've been unemployed too long because I wouldn't hire you"

 

Market pressure mounting on the ECB

El-Erian  asserts however that the « recovery » he surely is seeing needs to be pushed further so it doesn’t die prematurely. So what does he advise?  A European QE. You heard me, a whole Quantitative Easing Bernanke style program!

Second, the European Central Bank needs to pivot from financial-crisis prevention – an area where it has performed impressively – to striking the delicate balance of supporting growth (and countering currency over-appreciation) without fueling excessive risk taking. This may well involve renewed experimentation, which would again take many policymakers outside their comfort zone.

I emboldened two phrases: counter currency-over-appreciation means technically QE or monetary injection. Renewed experimentation is just a personal note: Do we really « experiment » with our children’s future?

So the rhetoric is the following. There is a deflationary risk. The ECB needs to intervene in financial markets activity to undergo some sort of proactive monetary policy, call it QE, open-market activities, or some sort of « exceptional » monetary measure.

Now I’ve already blogged before on how a program like QE is inefficient, unless you’re looking to buy political time. The amount of research on QE and unconventional monetary policy has shown that central bankers often take decisions that aggravate recessions. Friedman has already talked about this.

 

But the political elite, under popular pressure, are pushing Draghi and the ECB into adopting unconventional policies. Even though the technicalities for the ECB to do that are just unconstitutional at a European level. So any program similar to QE will have to pass through national parliaments. Who will benefit from QE? The real economy? Or financial markets, that have already been bailed out by the EU before? Allow me to be sceptical about these calls for monetary relief. A political relief is what the EU needs, and if the political elite are not aware of this fact, the European elections will sound the end of the single European project.

Conclusion: The (EU) economic crisis here to stay

Searching throughout Youtube for a video that I could share on EU’s unemployment problems, I found this piece of art.

It surely dates from October 2012, but I can assure you that the situation is not better. Europe is contemplating a lost generation. By eluding the political problem at the origin of the Euro crisis, countries and generations are being sacrificed. The upcoming EU parliamentary elections are critical for the Union’s future, especially with a main component of the EU symphony, France, performing poorly. As I « hastily » concluded in my first paragraph, EU economic problems are unfortunately here to stay. Unless political courage erupts within our political elite.

Links

Cementing Europe’s Recovery

Italy PM chooses women MEP candidates to combat ‘grey’ list

Déficit public: la France « tient ses engagements » (Valls)

Le jeu absurde des nominations ministérielles

Merkel defends coalition course in Bundestag general debate

France backtracks in battle over EU deficit target

François Hollande approval rating falls despite reshuffle

Remaniement: les unes de la presse française et européenne après la nomination de Manuel Valls à Matignon

European Banks still pose global risk 

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Back to Blogging!

It has been a difficult month. Besides having some personal issues, I have been reflecting on this blog and ways to make the reader experience better. This is why I haven’t posted for nearly a month now. Now I’m back to (semi) serious blogging!

But guess what? I’m nearly done with my new online strategy! The biggest change that you will notice, is that my first steps into the blogging world were a way to express myself publicly and try to force the debates I wanted to have in real life, online. This might be a good approach if you are blogging on a personal level, as a therapy, or a diary. But my ambition is for my blog is to give every reader a smooth and light user experience, while getting complicated and not simple to apprehend information.

In a soon to be posted article (this week probably), I will discuss the issue of publishing and the media industry. The digital world is changing the way media do business, and it seems that a lot of the mainstream people are just too busy doing what they do best, old school reporting, to notice it.

I’m just making a micro contribution :-)

Anyways, I hope you like the new design, and I hope some of the blog readers will supply feedback, I even hope for some of my readers to offer to contribute! Anyone wishing to post an article about any of the blog’s category’s, is more than welcomed.

And in case you wanna know what to do when you migrate your blog to another platform, and need a refresher on Indexing your blog by Google, KissMetrics has made available on their blog a « How to Get Your New Website or Blog Discovered » section in this post: « Get Google to Index ».

Enjoy the ride!

Social Media Cartoon

History Of My Blog: Tweet!

You are on your deathbed cartoon

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Work Like a German (By Glenn Hutchins, NYT)

Work Like a German (By Glenn Hutchins, NYT)

A great read on the German labor market and model. I found this op-ed very interesting in its approach. It focuses on shifting the debate to certain categories of the workforce that need to be walked through long structural unemployment period. A step away from one-size-fits-all analysis of entire population chunks that often results in holistic and bad policies. It discusses incentives to improve workers’ qualification and training during unemployment periods.

And the author notes that a similar policy can be achieved across political boundaries and rivalries. And the German example proves that point.

About the author: Glenn H. Hutchins 

Links:

European Economic debate : asking the wrong questions leads to bad policy

A note on the German success story: when football meets economics

Enough German Bashing (if a European Union is what you really want)

Market economy praised by German president; a tribute to the Freiburg school

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More US recovery illusions: GDP misses target, markets cheer.

Last Friday’s report was released, and as I predicted, a lot of blame for the sluggish figures fell on the weather.

Despite a strong February on the markets, indices soaring to new highs, economic fundamentals are not responding to the overwhelming optimism. Nearly 6 years into the crisis, overall growth is still for the 1% involved in the stock market, while the real economy takes a hit after another, disguised in an optimist rhetoric.

Maybe optimists need to incorporate in their analysis and projections that we live in an interconnected world. If the Russian stock market takes a hit, other markets might benefit from a short-term spillover effect of scared investors. This however is offset by the damage to trade relations a wounded Russia might represent to the global economy. Some on Wall Street might see the turbulence in emerging markets as beneficial to their short-term interests, but in a time of deep, chronic recessions, no one needs major economies competing in economic warfare.

4th quarter GDP-BEA

What the data says

The data wasn’t that of the famous recovering US economy the consensus is talking about and President Obama is selling as his major achievement. After 6 years, and after all the monetary injections and stimuli plans applied to the suffering US economy, 2.5% GDP trend over the year is the best the world’s economic giant can do.

Data from the Bureau of Economic Analysis out Friday shows that real GDP — which measures output produced in the United States — grew at an annual rate of 2.4% in the fourth quarter of 2013. The second estimate is down 80 basis points from the 3.2% advance estimate BEA put out in January. The figure shows fourth quarter growth relative to the third quarter, when real GDP increased 4.1%.

The BEA presented the following as explanations for the deceiving GDP figure they presented

The deceleration in real GDP growth in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, and downturns in residential fixed investment and in state and local government spending that were partly offset by accelerations in exports, in PCE, and in nonresidential fixed investment and a deceleration in imports.

Analysts welcomed the news as encouraging despite the sluggish fourth quarter figures. The momentum continued existing for consensus analysts, it however has suffered from the bad weather…

 Jim O’Sullivan, chief U.S. economist at High Frequency Economics, pointed out that the results were close to the 2.5% consensus. “While 2.4% is fairly sluggish,” he wrote, “it was despite more adverse than usual weather at the end of the quarter and the government shutdown at the start. The shutdown directly subtracted 0.3 points from the growth rate through the government spending component, but there were likely other effects as well.”

So after finding the ideal scapegoat, the weather, now mainstream analysts are bragging that they expected the slowdown, and interpreted the technically « bad news » as an optimist overall situation. The weather argument however can be definitely dismissed, so anyone telling you that growth is not showing up because its afraid of ice cold temperatures, tell him to get his facts straight.

Januart service spending

And there you have it: all services, in fact, in January US consumers spent a record amount of $72 billion on services. So, the Service Recovery, if not so much Goods. It appears the weather was so harsh and horrible it led to… the largest spending on services in history!Of course, nobody will mention this as it is a favorable benefit from the weather: remember the propaganda only identifies the negative data and scapegoats it with snow in the winter.

So if you break down the spending and GDP data, you will get the bizarre impression that the weather did more good than bad to the overall economy. Some even underlines the fact that housing data contradicted the bad weather argument.

On 26 February, the US census bureau (part of the US department of commerce) released the “seasonally adjusted annual rate” of sale of new homes in the US. This piece of data is also called “new home sales”. On a seasonally adjusted basis, sale of new homes rose 9.6% in January from December—a big number for a month-on-month change. The annual change from January 2013 was a rather modest 2.1%.
This piece of data—sale of new homes in January—is at odds with the confidence plunge seen in the monthly data on the Housing Market Index (HMI). HMI measures confidence among homebuilders. It is published every month by the National Association of Home Builders (NAHB). It plunged from 56 in January to 46 in February.
Cold weather—spate of severe snow storms, arctic freeze, etc.,—is claimed to have affected their confidence. That does not sound very persuasive. If the traffic of homebuyers is good—that is, those who wish to or enter into contracts to buy new homes—then homebuilders should not lose their confidence because of bad weather.

To resume, bad weather has had several effects, as mentioned in my previous post, but does not come close to explaining the missing growth the US economy is not accounting for.

Then why is the weather only used as an excuse to offset negative parts of the overall macro image of the US economy?

All news is good news

Keeping in mind February was a record month for the stock market, and not so much for the real economy, why is everyone cheering?

As Peter Schiff puts it, heads we win, tails we win! The equity and bonds markets are in the sort of situation here where good news means more profits, and bad news means the Fed continues monetary injections, a win-win situation!

Growth figures are not performing well, emerging markets are in turmoil, weather is not helping, Ukraine and Russia at the brink of war, and how does the market react?

It soars! See what I mean when I point out the disconnection between the real economy and the 1%’s territory, the bull market? Here is the analysis of the excellent Zero Hedge.

With the Ukraine now openly appealing to the world to halt what in its own words is a Russian invasion, it only made sense that after the bigger than expected downward revision to Q4 GDP, and the miss in Pending Home Sales, that the S&P would close at a new all time high. Oh, there was that surge in the Chicago PMI which confirmed that the February weakness across all other data was not due to the weather, and which is all that the market decided to focus on.

And so once again, the fact that it was 3:30 pm at the end of the day – easily the most « fundamental » driver of stock valuation in the past five 5 years – overruled all bad news, or is it good news? The VIX was, as usual, slammed into the close in a mirror image of the last hour ramp »

It is confusing what the catalyst for stock surges any more is – is bad good news great, or is good news greater – aside from the Fed’s relentless growing balance sheet of course.

We are at a loss what else to highlight here: maybe the fact that despite the sheer euphoric idiocy the Nasdaq did finally closer lower.

You cannot master a market that is so critically dependent on a central authority for survival, similar to the global disconnected bull market we are witnessing. At most you can observe it and hope that at a certain point the real economy will start benefiting from all the money printed around. Every year drifted away from the stimulus makes the chances of witnessing a credible recovery dim, and the chances of a crash beginning 2015 in certain bubbly markets to match the real economy’s status more and more plausible.

Illusion of a recovery

The recovery has not produced the effects that are supposed to show after a historic stimulus plan.

The U.S. recovery from the Great Recession is still one of the worst recoveries in history (see red line at right).

recessions and recoveries

With so much public funds engaged yielding results so weak, the positive consensual rhetoric joins market exuberance in masking a sad reality: the economy will never recover, at least not like the world knew it. And instead of facing the public with this difficult reality, politicians everywhere are just buying time, hoping to find magical solutions to fundamental economic problems.

As Robert Blumen puts it,

Mainstream media discussion of the macro economic picture goes something like this: “When there is a recession, the Fed should stimulate. We know from history the recovery comes about 12-18 months after stimulus. We stimulated, we printed a lot of money, we waited 18 months. So the economy ipso facto has recovered. Or it’s just about to recover, any time now.”

Links and videos

Blame It On The Weather? Personal Spending On Services Highest Ever In January

WHY THE ECONOMY SUCKS: Because American Companies And Their Owners Are Greedier Now Than At Any Time In History

It’s Going To Be Huge Week For Economic Data — Here’s Your Complete Preview

U.S. GDP Growth Estimate Reduced To 2.4% For The Fourth Quarter 2013

Is US selling more new homes?

Say’s Law and the Permanent Recession

What this shows is that, while you can fund a new venture with money printing, you cannot print skilled workers or office space. At some point, real factors become the bottleneck, so their price has to rise. And when that happens, some producers get squeezed out because they cannot raise prices. If they over-estimated demand for their output from the start, they would have needed lower, not higher, costs to make profits. And that is the start of the recession.

Why the Fed’s taper could still cause a market meltdown

The paper by Michael Feroli, Anil Kashyap, Kermit Schoenholtz and Hyun Song Shin presented at the Monetary Policy Forum in New York on Friday argued that you don’t need complex financial instruments — like we had in the 2008 crisis — to cause a panic. Rather, panics can occur when good ol’ money managers get caught in a herd mentality.

The economists argue say that as the Fed continues to taper this year and prepares to hike rates, likely in late 2015, the end of easy money could set off another panic. “Stimulus is not a free lunch, and it comes with a potential for macroeconomic disruptions when the policy is lifted,” they write.

GDP REVISED DOWN

STOCKS CLOSE AT ALL-TIME HIGH: Here’s What You Need To Know

Pending Home Sales Beat And Miss Expectations At Same Time, Weather Blamed

Stocks Close At New Record High On Russian Invasion, GDP Decline And Pending Home Sales Miss

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« Greece at bay »; What Sapir has to say on Greece, Merkel, and the Euro.

An interesting interview of political economist Jacques Sapir, one of the main proponents of  breaking up the Eurozone as a single currency area.

I highlighted the parts I find interesting in the interview from a European institutional and economic perspective.

Source:

http://russeurope.hypotheses.org/2033

http://www.efsyn.gr/

The interview

-How do you judge Mrs. Merkel’s proposition in December that, in the name of the salvation of euro, the states of Eurozone should sign a kind of “contract” with Germany in order to fulfill their commitments?

Mrs. Merkel had launched the idea of “contracts” on the economic policy several weeks ago. But it is and idea basically flawed on principles. Economic policy is to be decided by a community, with a Parliament voting both incomes and expenses, in a country or a federation of country. This is the basis and the origins of democracy. There is no place here for contractual relations. To try to ape the private law in such a domain if a recipe for failure. Actually what we could see here is an attempt to turn something highly political into something of “technical”. But this depolitisation of economic policy is actually harboring a deep threat on Democracy. In a Federal State, one could have common guidelines for economic policy, but with a strong solidarity in return. Germany by example, or the United States, is a Federal State and it is well known that the federal budget is by far the most important compared to states or Lander budgets. The Brussels budget, or the EU common budget, is topping just 1,26% of the European Union GDP. This is far too small to qualify as a “federal” budget. What is needed is a 10% to 12% GDP budget at least.  In the short term what would be needed is a large transfer budget from North to South, amounting to 300-300 Billions euros a year. This amount of money is to be supported by Northern Europe countries. But, we know that this would imply a burden far to high even for Germany: between GDP 8% to 12%. That would break the back of German economy. There is then no point asking to Germany for such and amount of money or complaining that Germany doesn’t want to pay. Germany can’t pay. So, behind speeches on “contracts” we are seeing the naked truth: Germany is just trying to impose on other countries its will. What Germany failed to do twice in the XXth century by brutal force she is trying to do through economic means.

-What’s the future of the Eurozone if we continue with the budget cuts and the austerity programs?

The future of the Eurozone is of course bleak. We have to look back at the beginning. The Euro couldn’t work with so different countries included in the zone. The heterogeneity level was much too big. Diverse issues were raises. First, the one of inflation with the presence of “structural inflation” rates widely different among countries. Second, the fact that the rate of productivity gains was too widely different among countries. Third, differences in demography were important, with demography stagnant in some countries and much more expansive in others. These differences were inducing different needs for economic growth. These issues were well known at the beginning of the Eurozone by 1999. But, economists and politicians for the sake of reaching the “single currency” overlooked them[1] when they did not pretend that the creation of the Eurozone would by itself induce some growth. We are paying now the prices of these mistakes, which were however denounced as such by some economists[2].

Budget cuts and austerity measures are of course worsening this situation and they are pushing a lot of countries in a deep crisis. It is important to recall that austerity effects were largely underestimated since 2012. By then, the “liberal” economic credo was that we could have a strong reduction of public expenditures and growth. It was of course wrong. The IMF has acknowledged this fact[3]. Some doubts were present by 2010 at least and even before[4]. Austerity is just precipitating countries into a large depression trap.

This can be seen in Graph. 1.

Graph 1

GDP

Source: IMF data base

Unemployment is still rising in all “Southern” countries (Spain, Italy), including France. But, it is to be said that even with a more lenient economic policy, the future of the Eurozone would still be bleak. Even if Germany decided to loosen the austerity straightjacket that would not cure basic common currency defects, which are well known by economist all over the world. We are facing a rapid death or a long agony, but the end result will be same. It is now absolutely impossible to make the Euro working for all countries.

-Some days ago the Centre for European Policy (Freiburg) has asserted that there’s no possibility for Greece to repay its loans and that its creditworthiness is reducing fast. What does it mean to you?

It is not a surprise. I told, by fall 2011 that Greece could not and would not repay its loans. I told that again after the first haircut. We already had several haircuts, but for what result? The Greek debt is still unbearable. To say otherwise is utter irresponsibility. Two solutions are then possible, either a strong inflation (possibly coupled with an exit from the Eurozone) or a default. The first one would be the better. However, the faster we will come to this reality the better it will be for everyone in Europe. The Greek debt is going fast nowhere under the so-called “Troïka” regime.

-Is the exit from the Eurozone a realistic scenario and what the consequence in real economy and social life would be?

Again, I told by 2010 that exiting from the Eurozone, with a large devaluation, would be the best option for Greece. Of course there would have been some economic suffering in this process but far less than what it is imposed on Greek people now, and without any result. Investment is now falling well under its year 2000 level, which is compromising the long-term future.

Graph. 2

Greece-In

Source: IMF data basis.

It is not just material capital, which is now not replaced at the same level than in 2000 but also human capital. It is to be known that the health situation is fast degrading in Greece. The medical journal The Lancet is writing:

« The cost of adjustment is being borne mainly by ordinary Greek citizens. They are subject to one of the most radical programmes of welfare state retrenchment in recent times, which in turn affects population health. Yet despite this clear evidence, there has been little agreement about the causal role of austerity. (…)In view of this detailed body of evidence for the harmful effects of austerity on health, the failure of public recognition of the issue by successive Greek Governments and international agencies is remarkable. Indeed, the predominant response has been denial that any serious difficulties exist, although this response is not unique to Greece; the Spanish Government has been equally reluctant to concede the harm caused by its policies.[5] »

With a large devaluation population suffering would have been far less and on a shorter period. Greek industry and agriculture will recover their competitiveness and exports, which were quite impressive before 2004, would more than balance imports. Import restriction would not be the only way to balance foreign trade. This would have highly beneficial consequences on GDP growth. The surge of GDP has been computed as at least +15% in the first two years after an Euro exit and devaluation[6], the best result for any Eurozone country. The final results could reach between +25% to +35% in the first five years after the devaluation.

-And what about the consequence for the rest of the Eurozone?

As I told you, the Eurozone is doomed whatever we could do because it has been misconceived. If Greece had exited the Euro by 2010 or 2011 that would have crippled the Eurozone at once. But this would have been a much lesser evil than the current situation. Of course, some foreign banks would have faced difficulties. But, they are now facing difficulties even worse because of a stagnating economy. Even if Greece would be exiting now, that would be a severe shock on the Eurozone frail structure.

-Is the surveillance mechanism of banks sufficient enough to put under control shadow banking and speculation practices that have produced the present crisis?

The so-called “banking union” has ended into a most ridiculous situation, where a lot of banks (in Germany) are not to come under this supervision, and the budget needed would not be ready before 2025. But the “banking union” story, with all its bargaining and horse-trading ultimately going nowhere, has taught us a lesson. Germany is to do everything preventing it to have to pay for other countries. No country (including France) is ready to abandon its own regulatory power when it comes to money. It’s a pity that no one seems to have understood the lesson.

-You have stated that a real Federal Europe is less possible than a Martian invasion on Earth. How do you explain?

As “European elections” are coming now a lot of people in a lot of political parties are now speaking about “Federal Europe” and pledging to do now what they did not for more than 20 years. That’s pure fantasy, like banking on a Martian invasion. You could see this fantasy as a kind of selfish illusion or as a kind of damned lie. Some of these people are entertaining themselves with dreams but have not seriously addressed the actual conditions of realizing them. Other people never had and still have not any intention to build a “Federal Europe”. What has been a fantasy remains a fantasy. Countries, which have been recently admitted in the EU don’t want to help others. The North doesn’t want to help the South. The idea of a “Federal Europe” is dead. We are in a world of Nations and we have to accept this reality. Remember that Airbus and Ariane, frequently hailed as “European” accomplishments were actually the result of international cooperation decided through inter-governmental decisions. In the last 25 years we have been unable to define mechanisms for a true cooperation and integration but for international cooperation. May be the Martian would…


[1] A good example of such mistake can be found in Rose, A.K. (2000), « One money, one market: the effect of common currencies on trade », Economic Policy Vol. 30pp.7-45 et Rose, Andrew K., (2001), “Currency unions and trade: the effect is large,” Economic Policy Vol. 33, 449-461.

[2] Bun, M., Klaasen, F. (2007), « The euro effect on trade is not as large as commonly thought»,Oxford bulletin of economics and statistics, Vol. 69: 473-496. Berger, H., Nitsch, V. (2008), « Zooming out: the trade effect of the euro in historical perspective », Journal of International money and finance, Vol. 27 (8): 1244-1260. Flam, H., Nordström, H. (2006), « Trade volume effects of the euro: aggregate and sector estimates », IIES Seminar Paper No. 746. Baldwin R. (2006) « The euro’s trade effects » ECB Working Papers, WP n°594, Francfort. Baldwin R. et al. (2008), « Study on the Impact of the Euro on Trade and Foreign Direct Investment », Economic Paper, European Commission, n° 321. See also, Kelejian, H. & al. (2011), « In the neighbourhood : the trade effetcs of the euro in a spatial framework », Bank of Greece Working Papers, 136.

[3] O. Blanchard et D. Leigh, « Growth Forecast Errors and Fiscal Multipliers », IMF Working Paper, WP/13/1, FMI, Washington D.C., 2013

[4] A. J. Auerbach et Y. Gorodnichenko « Measuring the Output Responses to Fiscal Policy »,American Economic Journal: Economic Policy 2012, Vol. 4, n° 2, pp 1–27. L. Christiano, M. Eichenbaum, et S. Rebelo, « When Is the Government Spending Multiplier Large? », Journal of Political Economy, Vol. 119, No. 1 (Février 2011), pp. 78-121.

[5] Source: Alexander Kentikelenis, Marina Karanikolos, Aaron Reeves, Martin McKee, David Stuckler, «Greece’s health crisis: from austerity to denialism», The Lancet Vol 383, February 22, 2014, pp. 748-753, p. 751, www.thelancet.com.

[6] Sapir J, Murer P. et Durand C., Les scenarii de dissolution de l’Euro, Fondation ResPublica, Paris, 2013.

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