Doomed Nigeria?

If you think about it, Nigeria is an artificial state. European statesmen drew the boundaries between British territory and French territory in the late 19th Century. In the mid-20th Century those colonial-era territories became independent within the boundaries drawn by later European statesmen. In Nigeria, there is oil in the south; there are dessicated grasslands in the north. The northern part of the country is poorer, the southern part of the country is richer (well, less poor). The north is predominantly Muslim, the south is predominantly Christian.[1] How could one forge a single “nation” out of such disparate materials?

Broadly speaking, they did not succeed at this task. Most post-colonial countries in West Africa are plagued by economic stagnation, bad government, and corruption. Citizens are disaffected, to put it mildly.

In 2010, Goodluckwiththat Jonathan, drawing the bulk of his votes from the south of the country, won election as president of Nigeria. Since then, per-capita income among Nigeria’s 170 million people has risen from $4,740 a year to $5,360 a year. That’s about a 12 percent rise. So, people should be dancing in the street. However, that rise in national income did not flow on anything approaching an equal basis. For one thing, the money tended to stick in the southern regions that produced oil. Hence, northern Nigeria profited but little. Incomes in the south are now twice those of the north.

This disparity may have helped fuel the Boko Haram insurgency. Boko Haram recruits around the tattered edges of Nigerian society, among poor people, among young people, and among poor young people with no prospect of landing a job. In 2009 and 2010, Boko Haram attacked a dozen places; in 2011, twice that; in 2012, more than 60 attacks; in 2013, more than 50 attacks; and in the first quarter of 2014, about forty attacks. In April 2014, Boko Haram kidnapped 200 school girls from the town of Chibok in northeastern Nigeria.

The Nigerian government is riddled with corruption. Graft and the abuse of authority are endemic. It runs up and down through every level of society. In 2014 the head of Nigeria’s central bank announced the $21 billion in oil revenues had disappeared from the bank. President Jonathan fired him. Every interaction between a government official and a citizen involves a pay-off. It’s impossible to get through the airport without paying-off some official.[2]

What to do to encourage prosperity in the north? Northern Nigerians believe that President Jonathan’s government has starved them of their share of the national income. Spokesmen for people there urge infrastructure spending. The north lacks reliable electrical power and has a deficient road network. So, over the years the bonds between northern and southern Nigeria have frayed.

The insurgency threatens to spill over into neighboring countries like Cameroon, Chad, Niger, and Benin. All of the neighboring countries are what amount to French protectorates. Hence, the French are insistent that Boko Haram be crushed. Radical Islamism has already troubled the French at home and abroad. The “Charlie Hebdo” massacre demonstrates the danger from home-grown Islamists, while the insurgency in Mali can be construed to constitute and Islamist threat in the territories of the old French empire.

Is Nigeria doomed to disintegrate, like the post-colonial states of the Middle East?

[1] Maia de la Baume and Alissa J. Rubin, “West African Nations Set Aside Their Old Suspicions to Combat Boko Haram,” NYT, 18 May 2014; Heidi Vogt and Patrick McGroarty, “Nigeria’s Divisions to Test Nation’s New Leader,” WSJ, 6 April 2015.

[2] See: “Dogs of War” https://www.youtube.com/watch?v=HZbg5AdlO70

The owl and the pussycat.

Bounded by the Atlantic and Pacific Oceans, Americans are obsessed by their “un-secured” Southern border, a land frontier. Other people perceive the oceans as pathways as much as obstacles. During 2014, 350,000 people took to the sea in an effort to migrate illegally.[1]

In 2014, more than 80,000 people from the “Horn of Africa” have crossed the Gulf of Aden. Often, their first land-fall is Yemen, hardly an improvement on Somalia or Ethiopia. Their more distant goals are the oil-states of the Gulf. The largest numbers of those who reached Southern Europe by sea came from Syria and—mind-bogglingly—Eritrea.

This year more than 50,000 have descended the Bay of Bengal from Bangladesh and Myanmar to Malaysia and the little chicken-leg of Thailand that runs down the Malaysian Peninsula.[2] Many of these migrants are Rohinyas (Muslims living in northwestern Myanmar). The Buddhist military government has long persecuted the Rohinyas. Over the years, many of the Rohinyas sought refuge by taking passage to Muslim Malaysia. Often, the migrants fell prey to gangs of traffickers who sold them into near-slavery. In the last few years the trafficking gangs have extended their reach into Bangladesh.

Gangs in Myanmar and, now Bangladesh, shanghai people and take them to Thailand and Malaysia. They are crammed into little fishing boats and lightered to larger ships in the Bay of Bengal. The ships bear them south to Thailand, where they are unloaded and moved to camps in the jungle. Then the gangs start to economically exploit their captives. First, the gangs extort a standard fee from the families of those they have kidnapped, just to let them go on living. If the family can pay the ransom, then the traffickers move the captives into Malaysia. Here they work for low wages on plantations, or construction jobs, or sweat-shops. News accounts don’t say what happens to those whose families cannot pay the ransom.

The human stories are both illuminating and heart-breaking.[3] Amadou Jallow was a 22 year-old Gambian college graduate with a teaching certificate and a job in a high-school. The pay was lousy compared to what rumor said he could make in Europe. One day in 2002, without telling his father, he borrowed part of the family savings from his mother as a grub-stake, mounted his bicycle, and set off for Senegal. From Senegal he hoped to catch a boat to the Canary Islands. Two years later he finally caught his boat, although it was from Guinea-Bissau.

The boat was over-loaded (131 people set out) and badly supplied with food and water (there were supplies for six days, but the voyage took eleven days). The bodies of those who died during the night were thrown over-board when dawn broke. The hell-ship finally reached the Canary Islands. The passengers spent six weeks in a detention center, then were flown to Spain. Jallow was delighted: “I thought I was going to be a millionaire.”

It hasn’t turned out the way he expected. He made about 600 euros a year as a teacher. Now he averages about 2,000 euros working in restaurants or in farm fields. This is a pittance given the much higher cost of living in Europe compared to Gambia. He sent about 4,000 euros home to his family, but stopped doing that when work became hard to get. Now he lives in a squalid camp in a forest with other African immigrants.

The Africans keep up the charade that first drew them to Europe. They feel humiliated by their own stupidity and embarrassed by having used the modest savings of their families to finance these fool’s errands. They send home photographs of themselves smiling and standing next to expensive cars as if they were the owners. They never tell anyone the truth when they call home. More and more Africans are drawn to make the difficult, often dangerous journey to Europe. Twenty-five thousand of them have reached the Italian island of Lampedusa in recent years.

[1] Somini Sengupta, “More Refugees Take to the Sea, U.N. Reports,” NYT, 11 December 2014.

[2] Syed Zain Al-Mahmood, “Traffickers Take Aim at Bangladeshis,” WSJ, 29 October 2014.

[3] Suzanne Daley, “Chasing Riches From Africa to Europe and Finding Only Squalor,” NYT, 26 May 2011.

Annals of the Great Recession VIII.

When we say “investors” we naturally think of Thurston Howell III from “Gilligan’s Island.” Nothing could be further from the truth in contemporary America. Now “investors” means banks, insurance companies, hedge funds, and pension funds. Many of these investors are, in turn, owned by mutual funds. These investors had a lot of money to throw around and they wanted safe investments.[1] The banks addressed this dual problem by creating Collateralized Debt Obligations (CDO). Essentially, a CDO is a super-bond that groups together many smaller loans. So, a CDO is a big financial instrument appropriate for a big investor. At the same time, the CDO addressed the safety problem by bundling the few loans anticipated to default with the many that were expected to not default. These CDOs proved to be wildly popular with investors: $550 billion worth of CDOs were issued in 2006 alone.

For a combination of reasons, the risky, or “sub-prime,” share of mortgages greatly expanded. Rather than trying to rein-in the “sub-prime” risk, lenders relied on safety features of the CDO (many presumably sound mortgages bundled together with a handful of presumably bad mortgages). Furthermore, other companies sold insurance for the derivatives, so they seemed very safe. The market in these “financial derivatives” just exploded. Less noticed, many of the loans were also adjustable rate mortgages (ARMs) which allowed the lender to increase the interest rate charged the borrower if interest rates in general began to rise.

Then, in the second half of the 2000s the whole process went into reverse.[2] The Federal Reserve Bank raised the Federal Funds Rate from 1 percent in Summer 2004 to 5.25 percent in 2006, then left it there until Summer 2007.[3] Interest rates began to rise and housing prices began to drop. The adjustable rate mortgages followed the track of interest rates in general, squeezing many marginal home owners to the point where they could not service the mortgage at all. Defaults suddenly began to mount, leading to foreclosures, leading to a glut of homes on an already falling market, leading to a further decline in the value of all homes.

The trouble here finally appeared in the opacity of the CDOs. Once the defaults started to mount, it proved impossible to tell with any certainty how solid any one CDO was. It might be made up of mostly good loans with a few dogs mixed in. It might be a veritable animal rescue society with a few good loans mixed in. As Peter Peterson put it, “you’ve got ten bottles of water and one of them is poisoned; which one do you drink?” There was no way to tell, so people did the safe thing by distrusting all of them.

As the number of worthless mortgages inside the “bundles” of mortgages bought by investors rose sharply, the value of the securities plunged. Banks that had bought these securities as part of their capital, suddenly found their balance sheets showing huge losses. Worse still, the companies which had sold insurance on the derivatives found that they had misunderstood the degree of risk of default and did not have the resources necessary to cover their own losses. Banks started refusing to lend to other banks out of a fear that the loans would not be repaid. Suddenly, the whole financial system seemed to be on the verge of collapse.

The United States had been through this once before, in the early stages of the Great Depression of the Thirties. Inadequate government action then had led to more than a decade of hardship, misery, and political upheaval. This time would be different. Sort of.

[1] “The ‘toxic debt’ tsunami,” The Week, 20 March 2009, p. 13.

[2] “Wall Street’s hidden time bombs,” The Week, 10 October 2008, p. 11.

[3] http://fpc.state.gov/documents/organization/112465.pdf

Annals of the Great Recession VII.

All business decisions are bets on an unknowable future.[1] Faced with uncertainty about the future and the risk that some bets will go bad, businessmen have long sought to build in certainty through contracts and off-set possible losses through hedging. Commodities futures—promises to deliver a set amount and a set price at some future point—have been contracted for and traded for a long time. Commodities futures guarantee sellers a buyer and an income, while guaranteeing purchasers a product at a fixed price.

If uncertainty is one fixture of business, so is innovation. In the 1990s lenders developed a new form of betting on the future. Housing prices had risen steadily in the United States since the 1970s. Believing that housing prices were on a long-term or even permanent upward track, some lenders perceived mortgages issued today as a promise of secure returns tomorrow. Large numbers of newly-issued mortgages were bundled together into securities which were then sold to investors seeking the promise of above-market rates of return. In all lending there is the danger that the borrower cannot or will not repay the loan. The theory appears to have been that a few bad mortgages in any one bundle would not impair the value of all the other sound mortgages in the security.

Democrats wanted to bring these new financial instruments and markets under federal regulation in the same way that the Securities and Exchange Commission over-sees the stock market. Republicans defeated this effort. Indeed, Senator Phil Gramm pushed through a law which exempted such “financial derivatives” from federal regulation. Potentially, the derivative market had become the Wild West. On the other hand, it was a pretty small market in the later 1990s. What’s the worst that could happen?

The “dot.com boom” was one of the hall-marks of the late 1990s.[2] It turned out to be a bubble and the bubble popped in 2001. Then the 9/11 attacks administered a second shock to the system. Rather than put the United States through a financial crisis and recession, the Federal Reserve Bank pumped a lot of money into the economy and cut the short-term interest rate from 6.5 percent to 1 percent. Banks borrowed money cheaply, then re-lent it to others at a somewhat higher rate of interest. Pretty soon all the reasonable loans had been made, but there was still a lot of money to lend. What to do?

Make unreasonable loans, that’s what. Mathematical risk models for these loans, based on an extremely shallow historical record, predicted only a few defaults and constantly rising house prices. The usual standards for making a loan to someone were diluted. This allowed banks to lend to people and for purposes that normally would not have been acceptable. Some of it went to home loans that were labeled “sub-prime”; some of it went for auto loans, credit card debt, student loans, and commercial mortgages. In short, it financed a lot of consumption by ordinary Americans that otherwise would not have been possible.

So, the banks and non-bank financial institutions (mortgage originators) made all these loans. What to do with them? One answer would be “sit on them and collect the interest and principle until the loan is repaid, then make another loan.” Another answer would be “sell the loans (i.e. the right to be repaid by the original borrower) to investors looking for a steady income stream.” Mostly the banks chose the latter course. Selling the loans brought in cash immediately and earned fees for the banks. It transferred the assets to the “investors.”

[1] “Wall Street’s hidden time bombs,” The Week, 10 October 2008, p. 11.

[2] “The ‘toxic debt’ tsunami,” The Week, 20 March 2009, p. 13.

American Women Playing Basketball in Europe.

In November 2014, Bria Hartley and Kayla McBride were newcomers at the start of their first season of European basketball. By March 2015, the season was winding-down for Diana Taurasi. Their experiences illustrate the spread of American sports abroad that matches the growth of soccer in the United States; the challenges and rewards of living in a different country; and the different approaches to civic life in Europe and America.

Most American sports teams are run on a business basis. Many European towns regard successful teams as a source of civic pride that more than offsets any monetary cost. European women’s teams generally benefit from sponsorship by local governments or subsidies from soccer clubs. As a result, there are teams all over the place.[1] In Russia the “oligarchs” who rose up after the collapse of Communism and were brought to heel by Vladimir Putin pour in money without regard to the market pay-off. Instead, it’s a form of public relations. Company teams give a sense of pride to the employees. The companies view the teams as “socially-oriented projects.” To raise the level of play and to provide models for the local girls striving to excel, the teams bring in American players. In Europe, the pay is about double what players can earn in the Women’s National Basketball Association (WNBA). In Russia, it can be vastly higher. Over the last decade, hundreds of American women basketball players have gone to Europe during the American off-season.

After playing a season in the WNBA, in Fall 2014 Bria Hartley and Kayla McBride went to play for a team in Sopron, Hungary. Their early experiences surprised them, not always in a good way. Communications were a problem: the landlady at Hartley’s first apartment spoke little English (and Hartley’s Hungarian was—understandably—not all she might have wished it to be); there was a feeble Wi-Fi connection. European wiring systems aren’t always up to the standards of urban America: McBride feared she had blown up her Xbox on one occasion (sparks flying). European appliances, like refrigerators, are small and Europeans shop every day or every other day. There’s nowhere to go in Sopron between practices. By American standards, there are no tourist attractions; just a bunch of Medieval, Renaissance, and Baroque architecture. By American standards, there is no place to shop; no malls, just local markets.[2] Although Vienna is less than fifty mile away and the team gave the women cars, neither one knew how to drive a manual transmission and the street signs are in Hungarian and German. At nighttime, the city can seem a little like the set of a horror movie: no streetlights, an inconstant hallway light.[3]

Even the team itself is difficult to penetrate. American women players very often find apartments in the same complex, but the Europeans scatter around town. Many of the local players have some English. So, on the court in practice, English is the “lingua franca.” However, off the court, Hungarian is easier for the majority. So, they’re lonely.

They seize on the familiar: a WiFi café where they can e-mail home; a Tesco (the European version of Walmart); brands with American names like Heinz, even if it isn’t exactly ketchup that comes out of the bottle.[4] They call home a lot, they go home during the holiday break, and their families plan to visit.

Diana Taurasi’s situation is both very different and similar. She has been playing off-season basketball in Russia for seven years.[5] She now plays for the Ural Mining and Metallurgical Company’s Yekaterinburg team. The money is vastly better than what she can make in the WNBA, even playing for the championship Phoenix Mercury. The Mercury pays her a tad over $100,000 a year; Yekaterinburg pays almost $1.5 million.[6] Taurasi has a far more luxurious life and more supportive environment than do Hartley and McBride. She has her own translator, her own driver, and a free apartment in a very desirable district. Also, Taurasi’s team has been together longer and has older players, so it hangs together much better than does the team on which Hartley and McBride play. They go out for dinner and drinks, catch a drag show, go to the skeet range. Finally, by experience, Taurasi was more suited to adapt. She is the child of Argentine immigrants to the United States.

Still, playing in Russia presents all sorts of contradictions to Taurasi that don’t appear for McBride and Hartley. Yekaterinburg has a Hyatt with a luxury spa and rows of demoralizing Soviet-era workers’ tenements; it has oligarchs with private jets and pre-game tailgaters cooking chickens that they slaughtered that morning; championship games can draw 4,000 more-or-less sober miners. Shabtai von Kalmanovic, a KGB officer-turned-businessman who recruited Taurasi to play for his Moscow Spartak in 2006, got shot to bits in 2009. The killer has never been found. That murder taught Taurasi something about Russia. She remarked after the assassination of Boris Nemtsov, “They’re never going to find [the killer], and if they do, they’ll pin it on some guy from Chechnya.” The worsening of Russo-American relations has made many Russians (80 percent in one poll) anti-American. Even among the team’s fans, Taurasi can feel it building up.

In short, it’s a lot like study abroad or working abroad. Sue Bird, a WNBA player with a decade of experience in Russia, advises: “just relax because it’s really not that bad. Once you get comfortable and find your way, you’re good to go.”

[1] Seth Berkman, “Overseas, Lost in Transition,” NYT, 11 November 2014.

[2] There are, however, a great many low-cost dentists. This makes Sopron a Mecca for the chewing-impaired.

[3] Really, all that was needed was the goalie for a hockey team to be living in the same building.

[4] See: “Pulp Fiction” (1994, dir. Quentin Tarantino).

[5] Charly Wilder, “Where the Money Is,” NYT, 18 March 2015.

[6] So, when her Russian coach asked her to sit out one American season to ease the wear and tear on her 32 year-old body from playing year-around, she agreed.

Recent American Public Opinion.

Iran. In March 2015, 68 percent of Americans approved of negotiating with Iran over its nuclear program. Broadly, we can see the effects of the Iraq war on the public mind. Most people favored negotiations over the risk of war. What is remarkable is the degree to which the words and actions of leaders have had a disruptive effect in spite of this broad consensus.

First, Americans seem to have arrived at an “a plague on both your houses” attitude to the Obama-Netanyahu conflict. In March 2015, only 38 percent had a favorable view of Netanyahu, while 27 had an unfavorable view of the Israeli prime minister. In April 2015, only 37 percent approved of the Prime Minister’s handling of relations with the United States. However, only 38 percent approved of President Obama’s handling of relations with Israel.[1] In many eyes, it has begun to look like a personal dispute, rather than an affair of state.

Second, a sharp partisan division had begun to manifest itself in attitudes toward Netanyahu. In the March 2015 poll, 53 percent of Republicans had a favorable view of Netanyahu, while only 28 percent of Democrats had a favorable view. Doubtless, this division of views reflected the invitation to Netanyahu to address Congress that had been schemed-up by the Republican leadership and the Israeli ambassador, the former-American and former- Republican activist Ron Dermer. That isn’t the same as saying that American attitudes toward Israel itself have shifted dramatically. Yet.

Third, in March 2015, the Republicans pushed their luck by meddling with the negotiations with Iran.[2] Forty-seven Republican Senators sent a letter to the Iranians warning that an agreement that was only an “executive agreement” could be undone by a subsequent administration. Almost half of Americans (49 percent) disapproved of this action. The hyperventilation on the left about “treason” (cue Ricky Perry) was silly. However, a lot of Americans seem to take the same view as did Napoleon: “It was worse than a crime. It was a mistake.”

Energy. In March 2015, Pew Research surveyed Americans on their attitude toward energy and climate issues.[3] At this point, 81 percent favored government-imposed higher fuel-efficiency standards for vehicles and 64 percent favored tighter emissions limits on power plants. However, 59 percent favored building the Keystone XL pipeline. On the other hand, 31 percent opposed building the pipeline and 31 percent opposed tighter controls on emissions from power plants. On the subject of ranking the means to develop America’s energy resources, 60 percent assigned priority to alternative energy sources (wind, solar, hydrogen) and 30 percent assigned priority to exploring for and developing carbon sources (coal, oil, natural gas). At the same time, 56 percent favored more off-shore drilling for gas and oil, while 40 percent opposed it.

There is a lot of incoherence here. How to sort it out?

First, the opponents of the Keystone XL pipeline and the opponents of controls on power plant emissions represent the very large numbers of crazy people in American politics. Together they total 62 percent. Either the middle ground learns how to make deals or we’ve got problems.

Second, more carbon energy means more oil and gas, not more coal. The “war on coal” has already been won. Mitch McConnell just doesn’t know it.

Third, the President is pandering to his base in vetoing the Keystone pipeline.

[1] “Poll Watch,” The Week, 13 March 2015, p. 17; “Poll Watch,” The Week, 10 April 2015, p. 15. In the March poll a lucky 23 percent had never heard of the Israeli leader.

[2] “Poll Watch,” The Week, 27 March 2015, p. 17.

[3] “Voice of the People,” WSJ, 31 March 2015.

Long Term Trends 3.

In 2010 and 2011, New York Times correspondent David Leonhardt turned to the problem of the long-term deficit.[1] In his analysis, that deficit arises from “the world’s highest health costs (by far), the world’s largest military (by far), a Social Security program built when most people died by 70—and to pay for it all, the lowest tax rates in decades.” By Leonhardt’s estimate, we will need about $500 billion a year in annual deficit reduction for the next decade. The money will have to come out of the three big spending categories and from more revenue.

The Medicare budget is the “linchpin of deficit reduction.”  Leonhardt recommended introducing incentives for people to choose cost-effective health-care. In practice, that will mean taxing employer-provided health-care benefits like the income they really are. The cost has risen massively since 1975. This encourages spending on health-care, rather than using the market to restrain price increases. Also, it is a benefit available only to people with employer-provided health-care. So, Americans get taxed differently for no good reason. This cost the government $264 billion in revenue in 2010. The federal tax subsidy created by sheltering them from taxes benefits drug makers, hospitals, and insurers.[2] He also wanted Medicare to refuse to pay for health care that cannot demonstrate that it makes people healthier.

Test social programs for actual effectiveness. Lots of them just exist, rather than achieving anything. Doubtless, many Republicans would say the same thing about the encrustations of regulations on business and industry that have grown up over the decades without ever being sunsetted.

Last, cut military spending by $100 billion a year to reverse the post-9/11 expansion.

Some leading conservatives—Mitch Daniels, Glen Hubbard, Gregory Mankiw–have endorsed means-testing Social Security and Medicare benefits. That is, shove more of the cost of their own care and retirement off on people who can afford to pay it.

Leonhardt also favored higher taxes on the middle and upper classes. The mortgage-interest deduction chiefly benefits people in the higher income brackets. Tax breaks for investors (IRA exclusion, $12.6 billion; lower tax rate for dividends, $31.1 billion; lower tax rate for capital gains, $36.3 billion; not taxing capital gains on items left to people in wills, $39.5 billion; and the 401(k) exclusion, $52.2 billion) total $171.70 billion in ‘lost” revenue.

Social Security and Medicare are essentially about paying for the past. (Often an improvident past.) Spending on education, research, and infrastructure are about paying for the future we desire. Leonhardt argues that we should actually be spending more on the future.

However, it isn’t clear that American democracy has the ability to confront powerful and well-entrenched interest groups. Reforming Medicare would involve taking money away from doctors, insurance companies, hospitals, pharmaceutical companies.  Stabilizing Social Security will involve raising the cap on withholding, so that upper income groups get gored and means-testing benefits at the cost of upper-income groups. Raising the taxes on the upper income groups to sustain benefits for lower income groups invited push-back in the past and will do so again. Cutting defense spending has never been as easy as increasing it, especially in the midst of dangers. The refusal of Democrats to define “fair share” makes rational discussion difficult.

Still, laying out the problems and some possible solutions makes it possible to think about the implications.

[1] David Leonhardt, “The Deficit: Real vs. Imagined,” NYT, 22 June 2011.

[2] David Leonhardt, “Health care’s obstacle: no will to cut,” by NYT, 10 March 2010; David Leonhardt, “The 3 Biggest Tax Breaks—and What They Cost Us,” NYT Magazine, 17 April 2011.