楊懷康-無定向風

溫 家 寶 以 史 密 斯 粉 絲 自 居 ， 可 又 堅 持 要 揮 舞 干 預 之 手 。
真 的 讀 通 了 《 道 德 情 操 論 》 ， 只 是 那 隻 看 不 見 的 手 不 便 夠 了 ！

溫 家 寶 到 英 國 劍 橋 大 學 演 講 ， 學 生 擲 鞋 抗 議 ， 弄 出 一 場 小 風 波 。 北 京 外 交 部 向 英 國 作 「 嚴 正 抗 議 」 ； 而 溫 家 寶 則 斥 責 擲 鞋 為 「 卑 鄙 伎 倆 」 ， 但 不 影 響 中 英 人 民 友 誼 。 擲 鞋 的 是 德 國 學 生 ， 英 國 卻 要 啃 那 臭 鞋 ， 不 公 平 吧 ！ 埃 及 記 者 接 連 向 布 殊 擲 鞋 ， 北 京 外 交 部 以 至 溫 家 寶 似 乎 都 沒 有 以 「 卑 鄙 伎 倆 」 為 譴 責 ， 針 拮 到 肉 方 知 肉 痛 乎 ？

未 有 條 件 站 上 道 德 高 地

以 內 容 看 ， 溫 家 寶 這 篇 以 《 用 發 展 的 眼 光 看 中 國 》 演 講 無 甚 可 觀 ， 當 中 重 複 了 三 趟 的 「 我 深 深 愛 的 祖 國 」 小 題 ， 既 肉 麻 又 娘 兒 腔 ， 再 用 上 溫 家 寶 的 招 牌 凝 重 腔 調 朗 讀 ， 益 令 人 覺 得 那 場 演 講 跟 有 八 百 年 歷 史 的 劍 橋 格 格 不 入 。 到 了 演 講 末 尾 ， 也 就 是 他 給 擲 鞋 前 一 刻 ， 溫 家 寶 大 義 凜 然 地 訓 誨 西 方 國 家 ： 「 道 德 是 世 界 上 最 偉 大 的 ， 道 德 的 光 芒 甚 至 比 陽 光 還 要 燦 爛 。 」 更 是 矯 情 爆 燈 了 。

西 方 國 家 無 疑 有 不 少 見 不 得 光 的 行 當 ， 但 似 乎 沒 有 一 個 政 府 為 了 維 護 京 奧 般 百 年 盛 事 的 面 子 ， 當 知 道 嬰 兒 奶 粉 有 三 聚 氰 氨 這 般 傷 天 害 理 的 事 情 還 阻 撓 發 布 消 息 。 難 怪 那 個 德 國 學 生 按 捺 不 住 作 出 控 訴 ： 追 求 真 理 之 大 學 殿 堂 豈 能 自 我 作 賤 ， 任 由 獨 裁 者 一 派 胡 言 ？ 「 How can the university prostitute itself with this dictator here? How can you listen to the lies he is telling? 」

我 認 同 法 國 大 儒 伏 爾 泰 的 名 言 ： 「 我 不 同 意 你 的 論 調 ， 但 我 不 惜 犧 牲 性 命 捍 ? 你 的 發 言 權 。 」 故 此 不 管 是 打 斷 溫 家 寶 的 演 講 或 是 向 他 擲 鞋 ， 我 都 不 同 意 。 （ 我 也 反 對 那 個 記 者 向 布 殊 擲 鞋 ， 這 麼 一 擲 他 還 是 個 記 者 嗎 ？ ） 然 而 這 可 不 是 說 那 個 德 國 學 生 的 控 訴 無 理 ： 以 今 日 中 國 的 國 情 ， 作 為 總 理 ， 溫 家 寶 尚 未 有 條 件 在 劍 橋 這 個 擂 台 站 上 道 德 高 地 訓 誨 任 何 人 吧 ？ 中 國 不 比 西 方 國 家 更 需 要 道 德 燦 爛 光 芒 的 照 耀 嗎 ？

貪 婪 不 是 華 爾 街 的 原 罪

沒 有 錯 ， 溫 家 寶 不 是 以 這 個 道 德 論 反 求 於 己 ， 而 是 衝 當 下 的 金 融 海 嘯 而 來 — — 「 從 上 世 紀 九 十 年 代 以 來 ， 一 些 經 濟 體 疏 於 監 管 ， 一 些 金 融 機 構 受 到 利 益 驅 動 ， 利 用 數 十 倍 的 金 融 槓 桿 進 行 超 額 融 資 ， 在 獲 取 高 額 利 潤 的 同 時 ， 把 巨 大 的 風 險 留 給 整 個 世 界 。 」 像 江 澤 民 說 的 ， 這 般 論 調 未 免 too simple, sometimes naive 了 。

自 古 至 今 ， 人 類 從 來 都 為 「 利 益 驅 動 」 ， 那 並 非 華 爾 街 金 融 機 構 專 利 的 「 原 罪 」 。 過 去 的 金 融 危 機 沒 有 釀 成 海 嘯 ， 那 不 是 古 人 不 貪 婪 財 富 、 追 求 「 高 額 利 潤 」 。 只 是 過 去 的 危 機 都 不 是 像 這 一 趟 那 樣 ， 天 時 、 地 利 、 人 和 … … 所 有 因 素 全 都 聚 焦 起 來 ， 直 是 像 太 陽 系 「 九 星 聯 珠 」 — — 水 、 金 、 地 球 、 火 、 木 、 土 、 天 王 、 海 王 、 冥 王 星 順 序 在 太 陽 一 側 連 成 一 線 — — 那 般 罕 見 （ 每 一 百 七 十 九 年 才 得 一 遇 ） ， 那 又 焉 能 不 釀 出 空 前 浩 劫 ？

道 德 水 平 空 前 高 漲

換 言 之 ， 爆 發 金 融 海 嘯 ， 絕 非 是 人 心 不 古 、 道 德 淪 亡 ， 有 以 致 之 ； 而 是 種 種 在 正 常 情 況 下 絕 少 機 會 碰 在 一 起 的 因 素 — — 長 期 銀 根 鬆 動 ， 遇 上 電 腦 科 技 發 達 ， 令 人 迷 信 電 腦 程 式 買 賣 萬 無 一 失 ， 而 樓 價 更 是 只 升 不 跌 ， 信 心 爆 棚 ， 滋 生 僥 倖 之 心 ， 不 知 風 險 管 理 為 何 物 ； 加 以 全 球 經 濟 一 體 化 ， 以 致 所 有 金 融 機 構 都 義 無 反 顧 加 入 這 場 追 逐 高 回 報 的 遊 戲 ， 令 危 機 一 發 不 可 收 拾 。

於 此 可 見 ， 金 融 海 嘯 又 豈 是 道 德 敗 壞 帶 來 的 苦 果 ？ 那 極 其 量 是 貪 勝 不 知 輸 、 了 無 戒 心 地 冒 險 犯 難 闖 出 的 大 禍 而 已 。 反 之 ， 資 訊 發 達 ， 現 代 人 的 道 德 水 平 顯 然 更 是 史 無 前 例 地 高 。 要 不 然 跨 國 救 援 組 織 又 豈 會 如 雨 後 春 筍 般 地 蓬 勃 ， 全 方 位 向 四 川 地 震 的 災 民 以 至 加 沙 地 帶 的 難 民 伸 出 援 手 ？

史 密 斯 門 前 說 道 德

道 德 高 地 站 不 住 腳 ， 那 可 又 無 礙 溫 家 寶 班 門 弄 斧 — — 跑 到 阿 當 ‧ 史 密 斯 的 祖 家 舞 弄 其 「 無 形 之 手 」 之 餘 ， 更 搬 出 其 《 道 德 情 操 論 》 （ The Theory of Moral Sentiments ） 來 教 訓 企 業 家 ， 要 他 們 換 血 — — 換 走 「 見 利 忘 義 損 害 公 眾 利 益 」 的 壞 血 ， 換 上 「 承 擔 社 會 責 任 」 的 道 德 新 血 ： 「 如 果 一 個 社 會 的 經 濟 發 展 成 果 不 能 真 正 分 流 到 大 眾 手 中 ， 那 麼 它 在 道 義 上 將 是 不 得 人 心 的 ， 而 且 是 有 風 險 的 ， 因 為 它 注 定 要 威 脅 社 會 穩 定 。 」
上 網 尋 找 則 又 發 覺 這 絕 非 溫 家 寶 第 一 次 援 引 史 密 斯 這 句 話 ， 過 去 幾 年 他 已 不 知 道 用 上 多 少 次 了 。 到 劍 橋 作 演 講 前 ， 他 便 又 再 向 《 金 融 時 報 》 的 老 總 Lionel Barber 唸 了 一 遍 ， 更 又 透 露 ， 他 的 隨 身 行 李 收 了 一 本 《 道 德 情 操 論 》 ， 好 證 明 他 是 有 牌 的 史 密 斯 粉 絲 。 然 而 像 格 林 斯 班 說 的 ， 溫 家 寶 熟 讀 、 滿 以 為 學 懂 了 的 ， 是 否 史 密 斯 真 箇 要 說 的 話 ？ 原 文 是 什 麼 ？ 他 可 有 斷 章 取 義 之 處 ？

上 帝 才 可 以 為 人 民 謀 幸 福

朋 友 仗 義 替 我 作 人 肉 搜 索 器 尋 找 原 文 ， 竟 夜 而 不 得 要 領 。 「 還 原 工 程 」 空 手 而 回 ， 我 知 道 的 是 史 密 斯 並 不 認 為 政 府 的 有 形 之 手 可 以 替 人 民 謀 求 幸 福 ， 在 他 而 言 只 有 上 帝 才 有 這 個 本 領 。 在 《 道 德 情 操 論 》 裡 ， 他 是 這 樣 說 的 ： 「 管 治 宇 宙 這 個 大 系 統 ， 為 普 世 理 性 明 智 的 人 謀 求 幸 福 快 樂 ， 那 是 上 帝 而 不 是 人 的 工 作 。 上 主 給 人 分 配 了 一 個 較 為 卑 微 的 部 門 ， 而 這 個 部 門 的 工 作 跟 人 有 限 的 能 力 及 其 淺 窄 的 識 見 更 為 匹 配 ， 那 就 是 為 他 自 己 、 家 人 、 朋 友 、 國 家 謀 求 幸 福 快 樂 。 」 （ The adminstration of the great system of the universe, however, the care of the universal happiness of all rational and sensible beings, is the business of God, and not of man. To man is allotted a much humbler department, but one much more suitable to the weakness of his powers, and to the narrowness of his comprehension - the care of his own happiness, of that of his family, his friends, his country... ） （ Part VI, Section II, Chapter 3 ）

兩 隻 手 都 要 硬 ？

溫 家 寶 無 疑 承 認 過 去 的 社 會 主 義 計 劃 經 濟 「 束 縛 了 生 產 力 的 發 展 」 ， 打 擊 人 們 謀 求 幸 福 的 努 力 ， 他 可 不 像 史 密 斯 那 樣 謙 遜 地 評 價 人 的 能 力 ； 他 依 舊 放 不 下 「 人 定 勝 天 」 的 革 命 豪 情 ， 堅 信 可 以 揮 舞 政 府 的 有 形 之 手 ， 打 造 和 諧 社 會 。 他 在 劍 橋 這 樣 說 ：

這 場 金 融 危 機 使 我 們 看 到 ， 市 場 也 不 是 萬 能 的 ， 一 味 放 任 自 由 ， 勢 必 引 起 經 濟 秩 序 的 混 亂 和 社 會 分 配 的 不 公 ， 最 終 受 到 懲 罰 。 真 正 的 市 場 化 改 革 ， 決 不 會 把 市 場 機 制 與 國 家 宏 觀 調 控 對 立 起 來 。 既 要 發 揮 市 場 這 隻 看 不 見 的 手 的 作 用 ， 又 要 發 揮 政 府 和 社 會 監 管 這 隻 看 得 見 的 手 的 作 用 。 兩 手 都 要 硬 ， 兩 手 同 時 發 揮 作 用 ， 才 能 實 現 按 照 市 場 規 律 配 置 資 源 ， 也 才 能 使 資 源 配 置 合 理 、 協 調 、 平 衡 、 可 持 續 。

無 形 之 手 促 進 整 體 利 益

若 然 溫 家 寶 讀 通 了 《 道 德 情 操 論 》 、 是 正 牌 的 史 密 斯 粉 絲 ， 他 會 否 堅 持 兩 隻 手 都 要 硬 ， 資 源 配 置 才 會 「 合 理 、 協 調 、 平 衡 、 可 持 續 」 呢 ？ 恐 怕 不 會 。 史 密 斯 在 《 道 德 情 操 論 》 裡 讓 市 場 那 看 不 見 的 手 解 決 了 溫 家 寶 最 是 擔 心 的 貧 富 不 均 帶 來 的 威 脅 ：

不 論 貧 富 ， 人 的 胃 納 食 量 大 致 相 若 ， 為 了 生 活 過 得 好 ， 有 錢 人 到 頭 來 還 是 要 跟 窮 人 分 享 財 富 。 「 他 們 這 樣 做 就 仿 佛 是 被 一 隻 看 不 見 的 手 所 指 引 ， 分 配 生 活 所 需 ， 其 結 果 一 如 將 耕 地 按 人 口 平 均 分 配 那 樣 。 故 此 即 使 沒 有 這 個 用 心 ， 即 使 他 們 對 這 一 切 毫 不 察 覺 ， 他 們 其 實 是 在 促 進 社 會 的 整 體 利 益 ， 令 人 類 得 以 繁 衍 。 」 （ They are led by an invisible hand to make nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal portions among all its inhibitants; and thus, without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. ） (Part IV, Chapter I)

於 此 可 見 ， 史 密 斯 何 曾 像 溫 家 寶 那 樣 堅 持 要 政 府 使 出 那 「 看 得 見 的 手 」 才 可 以 達 致 中 國 領 導 人 渴 求 的 和 諧 社 會 ？ 然 而 不 管 讀 通 了 與 否 ， 從 以 馬 克 思 的 《 資 本 論 》 為 尚 方 寶 劍 把 中 國 人 鬥 個 死 去 活 來 ， 到 以 史 密 斯 的 《 道 德 情 操 論 》 為 令 箭 ， 祭 出 強 硬 的 干 預 之 手 ， 也 是 個 進 步 吧 ！

補 白
冥 頑 不 靈

從 BBC 聽 回 來 的 。 在 阿 根 廷 首 都 布 宜 諾 斯 艾 利 斯 乘 地 車 要 用 輔 幣 購 票 ， 近 期 輔 幣 短 缺 ， 結 果 ？ 輔 幣 升 水 ， 給 炒 高 一 至 兩 成 。 隨 諸 而 來 的 指 定 動 作 ， 大 家 耳 熟 能 詳 了 吧 。

首 先 ， 為 官 者 強 政 勵 治 ， 禁 制 炒 賣 。 炒 家 隨 而 轉 型 應 對 ， 改 賣 曲 奇 餅 — — 附 送 輔 幣 一 袋 。 像 Peter, Paul and Mary 的 《 Where Have All The Flowers Gone 》 說 的 ， Oh, when will they ever learn? Oh, when will they ever learn ？

轉載: 第 988 期 香港壹週刊 ( 12-2-09 )

                                 

The financial crisis has created an industrial crisis. What should governments do about it?

$0.00, not counting fuel and handling: that is the cheapest quote right now if you want to ship a container from southern China to Europe. Back in the summer of 2007 the shipper would have charged $1,400. Half-empty freighters are just one sign of a worldwide collapse in manufacturing. In Germany December’s machine-tool orders were 40% lower than a year earlier. Half of China’s 9,000 or so toy exporters have gone bust. Taiwan’s shipments of notebook computers fell by a third in the month of January. The number of cars being assembled in America was 60% below January 2008.

The destructive global power of the financial crisis became clear last year. The immensity of the manufacturing crisis is still sinking in, largely because it is seen in national terms—indeed, often nationalistic ones. In fact manufacturing is also caught up in a global whirlwind.

Industrial production fell in the latest three months by 3.6% and 4.4% respectively in America and Britain (equivalent to annual declines of 13.8% and 16.4%). Some locals blame that on Wall Street and the City. But the collapse is much worse in countries more dependent on manufacturing exports, which have come to rely on consumers in debtor countries. Germany’s industrial production in the fourth quarter fell by 6.8%; Taiwan’s by 21.7%; Japan’s by 12%—which helps to explain why GDP is falling even faster there than it did in the early 1990s (see article). Industrial production is volatile, but the world has not seen a contraction like this since the first oil shock in the 1970s—and even that was not so widespread. Industry is collapsing in eastern Europe, as it is in Brazil, Malaysia and Turkey. Thousands of factories in southern China are now abandoned. Their workers went home to the countryside for the new year in January. Millions never came back (see article).

Factories floored

Having bailed out the financial system, governments are now being called on to save industry, too. Next to scheming bankers, factory workers look positively deserving. Manufacturing is still a big employer and it tends to be a very visible one, concentrated in places like Detroit, Stuttgart and Guangzhou. The failure of a famous manufacturer like General Motors (GM) would be a severe blow to people’s faith in their own prospects when a lack of confidence is already dragging down the economy. So surely it is right to give industry special support?

Despite manufacturing’s woes, the answer is no. There are no painless choices, but industrial aid suffers from two big drawbacks. One is that government programmes, which are slow to design and amend, are too cumbersome to deal with the varied, constantly changing difficulties of the world’s manufacturing industries. Part of the problem has been a drying-up of trade finance. Nobody knows how long that will last. Another part has come as firms have run down their inventories (in China some of these were stockpiles amassed before the Beijing Olympics). The inventory effect should be temporary, but, again, nobody knows how big or lasting it will be.

The other drawback is that sectoral aid does not address the underlying cause of the crisis—a fall in demand, not just for manufactured goods, but for everything. Because there is too much capacity (far too much in the car industry), some businesses must close however much aid the government pumps in. How can governments know which firms to save or the “right” size of any industry? That is for consumers to decide. Giving money to the industries with the loudest voices and cleverest lobbyists would be unjust and wasteful. Shifting demand to the fortunate sector that has won aid from the unfortunate one that has not will only exacerbate the upheaval. One country’s preference for a given industry risks provoking a protectionist backlash abroad and will slow the long-run growth rate at home by locking up resources in inefficient firms.

Nothing to lose but their supply chains

Some say that manufacturing is special, because the rest of the economy depends on it. In fact, the economy is more like a network in which everything is connected to everything else, and in which every producer is also a consumer. The important distinction is not between manufacturing and services, but between productive and unproductive jobs.

Some manufacturers accept that, but proceed immediately to another argument: that the current crisis is needlessly endangering productive, highly skilled manufacturing jobs. Nowadays each link in the supply chain depends on all the others. Carmakers cite GM’s new Camaro, threatened after a firm that makes moulded-plastic parts went bankrupt. The car industry argues that the loss of GM itself would permanently wreck the North American supply chain (see article). Aid, they say, can save good firms to fight another day.

Although some supply chains have choke points, that is a weak general argument for sectoral aid. As a rule, suppliers with several customers, and customers with several suppliers, should be more resilient than if they were a dependent captive of a large group. The evidence from China is that today’s lack of demand creates the spare capacity that allows customers to find a new supplier quickly if theirs goes out of business. When that is hard, because a parts supplier is highly specialised, say, good management is likely to be more effective than state aid. The best firms monitor their vital suppliers closely and buy parts from more than one source, even if it costs money. In the extreme, firms can support vulnerable suppliers by helping them raise cash or by investing in them.

If sectoral aid is wasteful, why then save the banking system? Not for the sake of the bankers, certainly; nor because state aid will create an efficient financial industry. Even flawed bank rescues and stimulus plans, like the one Barack Obama signed into law this week, are aimed at the roots of the economy’s problems: saving the banks, no matter how undeserving they are, is supposed to keep finance flowing to all firms; fiscal stimulus is supposed to lift demand across the board. As manufacturing collapses, governments should not fiddle with sectoral plans. Their proper task is broader but no less urgent: to get on with spending and with freeing up finance.

Source: The Economist (Feb 21-27 )

                                 

Today’s crisis has given new relevance to the ideas of another great economist of the Depression era

SHORTLY after he was elected president, Barack Obama sounded a warning: “We are facing an economic crisis of historic proportions…We now risk falling into a deflationary spiral that could increase our massive debt even further.” The address evoked not just the horror of the Depression, but one of the era’s most important thinkers: Irving Fisher.

Though once America’s most famous economist, Fisher is now almost forgotten by the public. If he is remembered, it is usually for perhaps the worst stockmarket call in history. In October 1929 he declared that stocks had reached a “permanently high plateau”. Today it is John Maynard Keynes, his British contemporary, who is cited, debated and followed. Yet Fisher laid the foundation for much of modern monetary economics; Keynes called Fisher the “great-grandparent” of his own theories on how monetary forces influenced the real economy. (They first met in London in 1912 and reportedly got along well.)

As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly “inside” or “internal” debt—owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions. In 1933 he wrote:

Over investment and over speculation are often important; but they would have far less serious results were they not conducted with borrowed money. The very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate…the more debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip.

Though they seldom invoke Fisher, policymakers in America are applying his ideas. In academia Ben Bernanke, now the chairman of the Federal Reserve, sought to formalise Fisher’s debt-deflation theory. His research has shaped his response to this crisis. He decided to bail out Bear Stearns in March 2008 partly so that a sudden liquidation of the investment bank’s positions did not trigger a cycle of falling asset prices and default. Indeed, some say the Fed has learnt Fisher too well: from 2001 to 2004, to contain the deflationary shock waves of the tech-stock collapse, it kept interest rates low and thus helped to inflate a new bubble, in property.

Were Fisher alive today, “he would tell us we have to avoid deflation, and to worry about all that inside debt,” says Robert Dimand, an economist at Brock University in Canada, who has studied Fisher in depth. “The ideal thing is to avoid these situations. Unfortunately, we are in one.”

Fisher was born in 1867 and earned his PhD from Yale in 1891. In 1898 he nearly died of tuberculosis, an experience that turned him into a lifelong crusader for diet, fresh air, Prohibition and public health. For a while he also promoted eugenics. His causes, both healthy and repugnant, combined with a lack of humour and high self-regard, did not make him popular.

In 1894, on a trip to Switzerland, he saw, in water cascading into mountain pools, a way to “define precisely the relationships among wealth, capital, interest and income,” Robert Loring Allen, a biographer of Fisher, wrote. “The flowing water, moving into the pool at a certain volume per unit of time, was income. The pool, a given volume of water at a particular moment, became capital.” Over the next 30 years he established many of the central concepts of financial economics.

In 1911, in “The Purchasing Power of Money”, Fisher formalised the quantity theory of money, which holds that the supply of money times its velocity—the rate at which a dollar circulates through the market—is equal to output multiplied by the price level. Perhaps more important, he explained how changing velocity and prices could cause real interest rates to deviate from nominal ones. In this way, monetary forces could produce booms and busts, although they had no long-run effect on output. Furthermore, Fisher held that the dollar’s value should be maintained relative not to gold but to a basket of commodities, making him the spiritual father of all modern central banks that target price stability.

During the 1920s Fisher became rich from the invention and sale of a card-index system. He used the money to buy stocks on margin, and by 1929 was worth $10m. He was also a prominent financial guru. Alas, two weeks after he saw the “plateau” the stockmarket crashed.

To his cost, Fisher remained optimistic as the Depression wore on. He lost his fortune and his home and lived out his life on the generosity of his sister-in-law and Yale. But his work continued. He was prominent among the 1,028 economists who in vain petitioned Herbert Hoover to veto the infamous Smoot-Hawley tariff of 1930. And he developed his debt-deflation theory. In 1933 in Econometrica, published by the Econometric Society, which he co-founded, he described debt deflation as a sequence of distress-selling, falling asset prices, rising real interest rates, more distress-selling, falling velocity, declining net worth, rising bankruptcies, bank runs, curtailment of credit, dumping of assets by banks, growing distrust and hoarding. Chart 1 is his: it shows how deflation increased the burden of debt.

Fisher was adamant that ending deflation required abandoning the gold standard, and repeatedly implored Franklin Roosevelt to do so. (Keynes was of similar mind.) Roosevelt devalued the dollar soon after becoming president in 1933. The devaluation and a bank holiday marked the bottom of the Depression, though true recovery was still far off. But Fisher had at best a slight influence on Roosevelt’s decision. His reputation had fallen so far that even fellow academics ignored him.

Contemporary critics did poke a hole in his debt-deflation hypothesis: rising real debt makes debtors worse off but creditors better off, so the net effect should be nil. Mr Bernanke plugged this in the 1980s. “Collateral facilitates credit extension,” he said in June 2007, just before the crisis began in earnest. “However, in the 1930s, declining output and falling prices (which increased real debt burdens) led to widespread financial distress among borrowers, lessening their capacity to pledge collateral…Borrowers’ cash flows and liquidity were also impaired, which likewise increased the risks to lenders.” Mr Bernanke and Mark Gertler of New York University dubbed this “the financial accelerator”.

The downward spiral can start even when inflation remains positive—for example, when it drops unexpectedly. Consider a borrower who expects inflation of 2% and takes out a loan with a 5% interest rate. If instead inflation falls to 1%, the real interest rate rises from 3% to 4%, increasing the burden of repayment.

Asset deflation can do much the same thing. If house prices are expected to rise by 10% a year, a buyer willingly borrows the whole purchase price, because his home will soon be worth more than the loan. A lender is happy to make the loan for the same reason. But if prices fall by 10% instead, the house will soon be worth less than the loan. Both homeowner and lender face a greater risk of bankruptcy.

Today, debt in America excluding that of financial institutions and the federal government is about 190% of GDP, the highest since the 1930s, according to the Bank Credit Analyst, a financial-research journal (see chart 2). There are important differences between then and now. Debt was lower at the start of the Depression, at 164% of GDP. Mortgage debt was modest relative to home values, and prices were not notably bloated: they fell by 24% between 1929 and 1933, says Edward Pinto, a consultant, so were roughly flat in real terms. Debt burdens shot up because of deflation and shrinking output; nominal GDP fell by 46% between 1929 and 1933.

Debt burdens are high today mostly because so much was borrowed in the recent past. This began as a logical response to declining real interest rates, low inflation, rising asset prices and less frequent recessions, all of which made leverage less dangerous. But rising leverage eventually bred easy credit and overvalued homes.

Even without recession, falling home prices would have impaired enough mortgage debt to destabilise the financial system (see chart 3). Recession makes those dynamics more virulent; deflation could do similar damage. Broad price indices fell in late 2008. Granted, that was caused in part by a one-off fall in petrol costs; but America’s core inflation rate, which excludes food and energy, has fallen from 2.5% in September to 1.8%. Goldman Sachs sees it falling to 0.25% in the next two years.

That is low enough to mean falling wages for many households and falling prices for many firms. More widespread and deeper deflation would mean that property prices would have to fall even further to restore equilibrium with household incomes, creating another round of delinquencies, defaults and foreclosures.

What is the solution? Fisher wrote that it was “always economically possible to stop or prevent such a depression simply by reflating the price level up to the average level at which outstanding debts were contracted.” Alas, reflation is not so simple. Although stabilising nominal home prices would help short-circuit the debt-deflation dynamics now under way, any effort to maintain them at unrealistically high levels (where they still are in many cities) is likely to fail. Higher inflation could help bring down real home prices while allowing nominal home prices to stabilise, and reduce real debt burdens. But creating inflation is easier said than done: it requires boosting aggregate demand enough to consume existing economic slack, through either monetary or fiscal policy.

Though the Fed does not expect deflation, last month it did say that “inflation could persist for a time below” optimal levels. It is mulling a formal inflation target which, by encouraging people to expect positive inflation, would make deflation less likely. But its practical tools for preventing deflation are limited. In December its short-term interest-rate target in effect hit zero. The Taylor rule, a popular rule of thumb, suggests it should be six percentage points below. The Fed is now trying to push down long-term interest rates by buying mortgage-backed and perhaps Treasury securities. With conventional monetary ammunition spent, fiscal policy has become more important.

In 2002 Mr Bernanke argued the government could ultimately always generate inflation by having the Fed finance large increases in government spending directly, by purchasing Treasury debt. Martin Barnes of the Bank Credit Analyst thinks this highly unlikely: “You’d have capital flight out of the dollar. The only way it works is if every country is doing it, or with capital controls.”

Fisher died in 1947, a year after Keynes, and remains in his shadow. Mr Dimand notes that Fisher never pulled the many strands of his thought together into a grand synthesis as Keynes did in “The General Theory of Employment, Interest and Money”. More important, Keynes’s advocacy of aggressive fiscal policy overcame the limitations of Fisher’s purely monetary remedies for the Depression.

Yet Fisher’s insights remain vital. They have filtered, perhaps unconsciously, into the thinking of today’s policymakers. On February 8th Lawrence Summers, Mr Obama’s principal economic adviser, called for the rapid passage of a fiscal stimulus “to contain what is a very damaging and potentially deflationary spiral.” His advice bridges Fisher and Keynes.

Source: The Economist ( Feb 14-20 )

                                 

The costs and benefits of “pyramid” business groups

LIKE a blot on corporate India’s copybook, the Satyam scandal is still spreading. Two auditors from PricewaterhouseCoopers are in police custody, where they are trying to explain why they signed off on the outsourcing company’s cooked books. The chief minister of Satyam’s home state is trading furious accusations of negligence and worse with his predecessor. And on February 6th the government revealed that its serious fraud office is investigating no fewer than 325 companies wrapped up in the scam perpetrated by Satyam’s founder, B. Ramalinga Raju, and at least one of his brothers.

In India, as in many emerging markets, companies rarely stand or fall alone. Tarun Khanna of Harvard Business School and Yishay Yafeh of the Hebrew University of Jerusalem report that a third of Indian firms in the 1990s belonged to wider business groups, controlled by wealthy families or corporate “promoters”. These clubable firms were typically 4.4 times bigger than stand-alone companies.

Elsewhere in Asia, business groups are equally prevalent. In Hong Kong 15 families control corporate assets worth 84% of GDP, according to a 2000 article by Stijn Claessens, now at the University of Amsterdam, Simeon Djankov of the World Bank and Larry Lang, now at the Chinese University of Hong Kong. In Malaysia the figure is 76%.

These families exercise far more control than they pay for; their corporate reach exceeds their financial stake. This is sometimes because they hold a privileged class of shares that carry more votes than common equity. Sometimes they appoint a loyal relative as chief executive. But the most ambitious strategy for projecting control is to build a corporate “pyramid”.

The geometry works like this: the family holds a controlling stake (say 51%) in a company at the top of the pyramid. This firm then holds similar stakes in a second tier of companies, which will in turn maintain stakes in a third tier. In this way, the family controls the entire pyramid from top to bottom, even though its financial commitment to the second tier is only 26% (51% of 51%) and its stake in the third tier is only about 13%.

Pyramids solve what Yoshisuke Aikawa, the founder of the Nissan group in pre-war Japan, once called the “capitalist’s quandary”: how to raise money from outsiders without ceding control. Students of corporate governance view them less benignly. To them, pyramids combine the twin dangers of entrenched management and diffuse ownership.

In a closely held company, the manager is hard to oust because he owns most of the firm. But at least he will want to make a good return on equity, given that he owns most of it. In widely held companies, managers are easier to replace—they are hired help. But, by the same token, they have less skin in the game.

Pyramids combine the “worst of both worlds”, point out Randall Morck# of the University of Alberta and Daniel Wolfenzon and Bernard Yeung of New York University. They are tightly controlled by families, who have only a paltry stake in the companies at their base. When this gap between control and ownership grows too large, the pharaohs have an incentive to divert resources from companies at the bottom of the pyramid (where they might claim only 13 cents on the dollar) to the top (where their claim is 51 cents).

In a study of eight East Asian economies (Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand), Mr Claessens and his co-authors show that a family’s “control rights” often exceed their equity claim by a wide margin. When this gap grows to 35 percentage points or more, the market value of firms drops to only 80% of their book value.

Satyam may not have been part of a pyramid, but it is a good example of control exceeding ownership. The Raju family’s stake had dwindled to 5% or less on the eve of Mr Raju’s January 7th confession. What started out as a small family firm had become a widely held corporation, to which 218,000 shareholders had entrusted their money. But as subsequent revelations have made clear, it was still firmly in Mr Raju’s grip. Its market value has since plummeted. No one knows its book value.

Pharaonic sacrifices

If pyramids are such a threat to minority shareholders, Mr Khanna asks, why does anybody ever buy shares in them? One answer is that the danger is reflected in the price small investors are willing to pay for their shares. In some countries, the cost per share for a minority stake is 40% lower than the share price for a controlling block.

Another answer is that the pyramid can be a source of stability as well as exploitation. Mr Khanna shows that firms in heavily diversified Indian business groups outperform their free-standing rivals. Perhaps firms in a pyramid can prop each other up, offering “mutual insurance” that may be hard to buy on the market.

In a recent working paper, Yan-Leung Cheung of the City University of Hong Kong and his co-authors look at over 290 related-party transactions between listed Chinese firms and their controlling shareholders. They found that 132 of these transactions ended up benefiting minority shareholders. In August 2001, for example, Luoyang Glass, which is listed on the Shanghai stock exchange, received a $28m loan from its unlisted state-owned godfather. In the days after the announcement, its shares beat the market by 8.1%.

In his confession, Mr Raju said he had personally raised 12.3 billion rupees ($250m) in loans to help keep Satyam afloat. He may even be telling the truth. But pharaohs like to be buried in their pyramids, not for them. According to the Indian Express, a newspaper, he is now asking Satyam for the money back.

Source: The Economist ( Feb14-20 )

                                 

This week marked a huge wasted opportunity in the economic crisis

THERE was a chance that this week would mark a turning-point in an ever-deepening global slump, as Barack Obama produced the two main parts of his rescue plan. The first, and most argued-over, was a big fiscal boost. After a lot of bickering in Congress a final compromise stimulus bill, worth $789 billion, seemed to have been agreed on February 11th; it should be only days away from becoming law. The second, and more important, part of the rescue was team Obama’s scheme for fixing the financial mess, laid out in a speech on February 10th by Tim Geithner, the treasury secretary.

America cannot rescue the world economy alone. But this double offensive by its biggest economy could potentially have broken the spiral of uncertainty and gloom that is gripping investors, producers and consumers across the globe.

Alas, that opportunity was squandered. Mr Obama ceded control of the stimulus to the fractious congressional Democrats, allowing a plan that should have had broad support from both parties to become a divisive partisan battle. More serious still was Mr Geithner’s financial-rescue blueprint which, though touted as a bold departure from the incrementalism and uncertainty that had plagued the Bush administration’s Wall Street fixes, in fact looked depressingly like his predecessors’ efforts: timid, incomplete and short on detail. Despite talk of trillion-dollar sums, stockmarkets tumbled. Far from boosting confidence, Mr Obama seems at sea.

Toxic tantrums, contingent chaos

The fiscal stimulus plan has some obvious flaws. Too much of the boost to demand is backloaded to 2010 and beyond. The compromise bill is larded with spending determined more by Democrat lawmakers’ pet projects than by the efficiency with which the economy will be boosted. And it contains “Buy American” clauses that, even in their watered-down version, send the wrong signal to trading partners.

For all those shortcomings, the stimulus plan gets one big thing right. Given the pace at which demand is slumping, a big, and sustained, fiscal boost is vital for America’s economy. This package, albeit imperfectly, administers it.

That makes the inadequacy of the financial rescue all the more regrettable. Fiscal stimulus, indispensable as it is, cannot create a lasting economic recovery in a country with a broken financial system. The lesson of big banking busts, such as Japan’s in the 1990s, is that debt-laden balance-sheets must be restructured and troubled banks fixed before real recoveries can take off. History also suggests that countries which address their banking crises quickly and creatively (as Sweden did in the early 1990s) do better than those that dither. This is expensive and painful, but cautious, penny-pinching governments end up paying more than those that tread boldly.

By any recent historical standards America’s banking bust is big (see article). The scale of troubled loans and the estimates of likely losses—which are now routinely put at over $2 trillion—suggest many of the country’s biggest banks may be insolvent. Their balance-sheets are clogged by hundreds of billions of dollars of “toxic” assets—the illiquid, complex and hard-to-price detritus of the mortgage bust, as well as growing numbers of non-housing loans that are souring thanks to the failing economy. Worse, banks’ balance-sheets are only one component of the credit bust. Most of the tightness of credit is owing to the collapse of “securitisation”, the packaging and selling of bundles of debts from credit cards to mortgages.

Fixing this mess will require guts, imagination and a lot of taxpayers’ money. Mr Geithner claims he knows this. “We believe that the policy response has to be comprehensive and forceful,” he declared in his speech, adding that “there is more risk and greater cost in gradualism than aggressive action.”

But his deeds did not live up to his words. His to-do list was dispiritingly inadequate on some of the thorniest problems, such as nationalising insolvent banks, dealing with toxic assets and failing mortgages. Mr Geithner promised to “stress-test” the big banks to see if they were adequately capitalised and offer “contingent” capital if they were not. But he offered few details about the terms of public-cash infusions or whether they would, eventually, imply government control. His plan for a “public-private investment fund” to buy toxic assets was vague and its logic—that a nudge from government, in the form of cheap financing, would enliven a moribund market—was heroic. Banks’ balance-sheets are clogged with toxic junk precisely because they are unwilling to sell the stuff at prices hedge funds and other private investors are willing to pay. Vagueness, in turn, led to incoherence. How can you stress-test banks if you do not know how their troubled assets will be dealt with and at what price? Amid these shortcomings were some good ideas, such as a fivefold expansion of a $200 billion fledgling Fed facility to boost securitisation. But for nervous investors and worried politicians, desperate for details and prices, the “plan” was a grave disappointment.

A great failure of nerve

How serious is this setback? One interpretation is that Mr Obama’s crew mismanaged expectations—that they promised a plan and came up with a concept. If so, that is a big mistake. Managing expectations is part of building confidence and when so much about these rescues is superhumanly complex, it is unforgivable to bungle the easy bit.

More worrying still is the chance that Mr Geithner’s vagueness comes from doubt about what to do, a reluctance to take tough decisions, and a timidity about asking Congress for enough cash. That is an alarming prospect. “Banksters” may be loathed everywhere (see article), but more money will surely be needed to clean up America’s banks and administer the financial fix the economy needs. That, as this newspaper has argued before, means both some form of “bad bank” for toxic loans (with temporary nationalisation part of that cleansing process, if necessary) and guarantees to cover catastrophic losses in the “good” banks that remain. Mr Obama’s team must recognise this or they, like their predecessors, will come to be seen as part of the problem, not the solution.

Source: The Economist ( Feb 14 - 20 )