Whistling past the graveyard?

Posted on June 16, 2015 by jsh54

Simon Nixon holds that in the years before the financial crisis broke, Greece was flush with money. The Greek governments of the time did the popular thing by increasing pensions and wages for public employees well beyond the level that the feeble Greek economy could sustain in normal times. Then the slump dried up the river of money. Greece faced a crisis; a Greek financial collapse could spread to the rest of the Eurozone; and the European Central Bank, the Eurozone countries, and the International Monetary Fund stepped in with a bailout.[1]

In return for this bail-out, the creditors demanded that Greece make reforms of its unsustainable public-sector and pension systems to reduce spending to a level that the Greek economy could support in normal times. Instead of pursuing this politically unpopular course, Greece laid its main effort on enhanced tax collection and on a reform of the pension system that did not address the real problem. Thus, the number of bureaucrats fell as they were transferred to early retirement. This increased the burden of pensions in the budget rather than reducing it.

The Syriza government argues that budget cuts will just push Greece deeper into recession. They have been asking for an expansionary budget policy combined with more money from the European Union for “investment.”

There is a consensus on the need to “restructure” (greatly reduce) Greece’s debt. There is a consensus among the creditors on the need for serious reforms of Greece’s public sector and pension systems. A deal should be easy to reach. However, the Greeks want the debt reduction to come at the same time as the promise to implement reforms in the future.[2] The creditors don’t trust the Greeks to implement the reforms once they have the money in hand. As a result, they insist that the reforms have to precede any debt restructuring.

Anatole Kaletsky argues that, between the outbreak of the Greek financial crisis in 2009 and the end of 2014, there existed a real danger that a Greek default would be the first domino in a chain that ran through Portugal, Spain, and Italy before crashing down on Germany.[3] In January 2015, however, Mario Draghi, the head of the European Central Bank, won approval for a massive program of bond-buying on the part of the ECB. In essence, the ECB now can print all the money it needs to drown the fires of a financial crisis. Euro-zone countries agreed to this measure in order to build a fire-wall between Greece and the rest of the Eurozone. Now, the dangers of a Greek default are chiefly to the Greeks themselves: default will block access to foreign credits, end ECB support for the Greek banking system, lead to a run on the banks that will leave many people empty handed, and the government will be unable to pay the pensioners and public employees on whose behalf it has been engaged in this game of chicken.

Then there is the collateral damage. A “Grexit” may not do serious damage to the European economy. It will harm the reputation of the IMF. IMF rules bar it from lending to countries that are unlikely to be able to sustain the debt. The Eurozone lured the IMF into participating in the Greek bail-out by warnings of a “financial contagion.” Well, the current level of Greek debt is not sustainable. A Greek default will gore the IMF, which prime minister Tsipras has just denounced as ‘criminal.” That will affect IMF lending programs in several ways for the foreseeable future.

The level of emotional engagement here reminds us that politics isn’t always rational.

[1] Simon Nixon, “Athens and Its Creditors Head for the Brink,” WSJ, 8 June 2015.

[2] See: “I’ll gladly pay you Tuesday for a hamburger today.”

[3] Anatole Kaletsky, “Greek crisis: Europe has nothing to fear from Greek belligerence,” The Guardian, 16 June 2015.

A tale of two occupied cities.

Posted on June 16, 2015 by jsh54

Recently, the Wall Street Journal ran two stories in one day on the problems of “occupied territories” in two wars. The stories cast some light on possible future developments.

Since seizing Mosul in June 2014, ISIS has provided a sort of good government to the captured city of 1-1.5 million people.[1] Roads have been repaired and are well-maintained. The street lights are working far better than they did under the old regime. Theft of electricity through improvised wiring has ended. You can walk down the street without navigating around kiosks and barrows. Littering has come to a stop. All men wear beards and all women are fully covered. You don’t feel offended all the time by people scrolling through their Smart phones because the cell towers and Internet have been turned off.[2] ISIS drove out the Christian minority from the city. Now churches host garage sales. ISIS blew up the Shi’ite shrines that once dotted the city. One way to ensure compliance with government orders is to kill anyone who violates them.

The recapture of Mosul has been a loudly-proclaimed goal of the American—I mean Iraqi—strategy against ISIS. So far, most of the heavy lifting has been done by the Kurds, who have made advances around the western, northern, and eastern flanks of the city. However, the fall of Ramadi in Anbar province has put a spoke in the wheel of that strategy for the moment.

The Sunni majority in the city fears both the reconquest by the Shi’ite-dominated government and what might follow at the hands of the “liberators.”

It isn’t at all clear that Petro Poroshenko’s Ukraine government expects—or even wants—to recover the rebel territories in eastern Ukraine.[3] A cease-fire worked out in February 2015 has greatly reduced casualties among civilians. However, Poroshenko’s government has been tightening controls on movement between the two parts of Ukraine. One estimate is that trade across the cease-fire line has fallen by perhaps 70 percent since the cease-fire was implemented.[4] The Poroshenko government argues that the economic and political integration clauses of the cease-fire agreement have to wait on the military aspect of the cease-fire being “fully ensured.” The distinction seems intended to punish the residents of the eastern zone. Delays at the Kiev government’s check-points have extended a round-trip between Donetsk and neighboring towns in Ukraine proper from two hours to twelve hours. Furthermore, the Ukrainian border guards regularly demand hefty bribes—in effect a government tax on exports—from truckers. Food and medical supplies from Ukraine have begun to dwindle as the border guards refuse to allow their passage. The Kiev government has begun denying pension benefits to anyone living permanently in the rebel-held regions. The Russians have not taken up the slack. Yet. This policy runs the risk of driving many people in eastern Ukraine who do not support “independence” under the Russian thumb into the arms of the rebels. One frustrated traveler said “”Give me the opportunity to work and live peacefully and I don’t care who is in power.”

Clearly, conditions in Mosul are far worse than in eastern Ukraine. The occupation of Mosul by ISIS seems likely to end in a horrific fashion, while Ukraine will be partitioned.

[1] Nour Malas, “Year of Islamic State Rule Transforms Mosul,” WSJ, 10 June 2015.

[2] That doesn’t mean that no news reaches the city. Residents seem well aware of the reports of very destructive fighting, looting, and retribution killings by Shi’ite militias in the re-capture of Tikrit.

[3] Laura Mills, “In Ukraine, Anger Grows as Border Tightens,” WSJ, 10 June 2015.

[4] That is, much more trade took place while the fighting was still going on at a high pitch.

Coming Soon to a Theater Near You: Grexit Rising:

Posted on June 14, 2015 by jsh54

When it comes to tossing around their weight, it doesn’t matter that each country has a single vote at the U.N. General Assembly. There are a few big, important countries and there are many little, unimportant countries. You can see this at work in the current stand-off over the Greek debt issue.

The I.M.F., although chock-full of technical experts, still has an acute political awareness. So, the I.M.F. has long favored pairing a reduction (“restructuring”) of the debt owed by Greece to its European creditors (especially Germany) with economic reforms by Greece. Greek debt is up to 180 percent of GDP. There is no way the Greeks are going to make the sacrifices necessary to pay the debt, but the European creditors have refused to absorb the losses. The Greeks revolted against both austerity and the reforms pushed by the I.M.F. and the European Union. Now there is a dead-lock. However, in public the I.M.F. has laid the blame for the impasse at the feet of the Greek government. Complaints about the intransigence of the creditors were uttered sotto voce.[1] That reflects the importance of Germany and France on the world scene and within the European Union. The harsh stance toward the Greeks also reflects the utter unimportance of their country. Greeks are by nature Hellenophiles, so they have some difficulty registering the reality that no one else cares what happens to Greece.

Before joining the Eurozone, the Greeks could have dealt with their debt problem (and did) by devaluing their currency. Effectively, this robbed their creditors. Served the creditors right for lending to the Greeks. Financial Darwinism in action. Nobody much cared. Joining the Eurozone, with its single exchange rate, robbed Greece of this option.[2]

In a normal bankruptcy, the creditors would have to eat a lot of their claims on the grounds that they had been foolish to lend the money in the first place. The Greek case is different because the crisis arose when it became apparent that several Greek governments representing different parties had “cooked” the national accounts in order to deceive lenders. So, it seems perfectly reasonable to me that Greece would get its head held under the tap while someone (with a German accent) gave them a good scrub with a steel brush. Still, you can’t get blood out of a stone. Why not say “enough is enough”?

I conjecture that there are several reasons. First, once all is forgiven, and the debt has been written down, and the Greeks have agreed to some cosmetic reforms of unions and pensions, and enough time has passed for people in financial markets to forget about the whole thing[3], the Greeks will do it again. There is no solution to this problem except to boot the Greeks out of the Eurozone. Second, what will be the effect of a Greek default on the creditors? Back in August 2012, it was estimated that the Eurozone Central Banks could lose as much as 100 billion Euros from a Greek default, with the German Central Bank getting soaked for up to 27 billion Euros.[4] I have not seen much discussion of the impact on the creditor economies of a Greek default (but maybe I wasn’t looking). Economically, but even more politically, accepting that the money is gone will be hard for democracies to choke down. Still, push is coming to shove. Either before or after a new “extension,” the Greeks will get shoved out the door.

[1] Liz Alderman and Landon Thomas, Jr., “I.M.F. Recalls Negotiators as Deadline Looms for Greek Deal,” NYT, 12 June 2015.

[2] In exchange, the Greeks gained the transient psychic benefit of believing that they did not live in a banana republic.

[3] In all likelihood a relatively short span of time. Which should make Americans wonder whether anyone learned any lessons from our own “recent unpleasantness.”

[4] See: https://en.wikipedia.org/wiki/European_debt_crisis#Greece

Digging deeper.

Posted on June 14, 2015 by jsh54

Sometimes, the investigation of one thing turns up evidence on something else. That’s one of the hazards—or pleasures—of historical research, journalism, and policing. That’s the case with the follow-on to a couple of recent traumatic events.

First, since the indictment of six Baltimore police officers in the death of Freddie Gray on 1 May 2015, Baltimore has suffered 55 murders.[1] That is twice the “normal” rate and the highest levels seen in the city since the very violent 1970s. Why the surge in homicides? African-American community leaders blame what amounts to a police strike since the indictment of the officers. The arrest rate dropped sharply. This alleged stand-down by the street cops “gave criminals space to operate.” This isn’t very credible as an explanation. Murder rates vary across months of the year, while the police presence remains basically stable. One kid living near a drug market told the New York Times that “Summertime: that’s when they do all the killing.” A more compelling explanation is the one offered by Baltimore police officials. During the riot in April 2015, 27 pharmacies were looted. Officials estimate that 175,000 doses of Oxycontin disappeared.[2] Oxycontin moves on the street for $30 a dose, so that’s $5.25 million of drugs that landed in the hands of dealers.[3] Because it was cost-free, it all represents pure profit after the distribution costs to the dealers. They key to profit, then, appears to be control of marketing outlets, rather than control over supply. That means a war for the corners and increased murders.

Second, the death of Eric Garner while being arrested in July 2014 reveals something about police-community interactions beyond the standard “broken relationship” trope.[4] In their longer-term context, police-community relations deteriorate when the community feels that it has been abandoned by the police to the criminals. Rebuilding that relationship requires the police to act effectively and to be seen to be acting effectively against crime. When William Bratton headed the New York Police Department (NYPD) in the 1990s, he introduced the “broken windows” strategy. This involved addressing the many small signs of social decay to clear away the underbrush that both shielded and could grow into serious crime. The NYPD also adopted a more analytical, statistics-based approach to targeting resources. Those approaches have remained in effect to this day. Crime rates have dropped dramatically, although people often contest claims that “broken windows” policing is responsible for the drop.

Tomkinsville Park on Staten Island had emerged as one area of statistical concern to police leaders. A little over half way through 2014, there had already been 696 calls to 911 about the area. There had also been 11 posts to the city’s hotline for complaints, called 311. Between March and June 2014, these reports had reached senior police commanders and the local commanders on Staten Island had been instructed to address the issue.

One of the 311 complaints came from Gjafer Gjeshbritaj, who owned an apartment building in the area. He complained of drug dealers hanging out in front of his building. His earlier efforts to disperse them had led to a physical confrontation. Moreover, Gjeshbitraj complained, the dealers used the people selling “loose” (illegal untaxed) cigarettes as cover for their own business.

This converged with the “broken windows” strategy and Mr. Gjeshbitraj belonged to the community of law-abiding citizens with whom the police were trying to build ties. Police visits to Tomkinsville Park increased and so did arrests, summonses, and warnings.

On 17 July 2014, a police lieutenant passing by noticed the crowd of cigarette sellers and others on the sidewalk near the park. He called the local precinct to tell them to send some men. All the rest followed.

[1] Richard Oppel, Jr., “Looking for Gains in Policing, Baltimore Finds Fewer Police,” NYT, 13 June 2015. Forty-two murders in May and 13 so far in June.

[2] I conjecture that large amounts of Sudafed disappeared as well. Following cultural stereotyping, I further conjecture that this all was unloaded to wholesalers in West Virginia and on the Eastern Shore.

[3] To get a sense of proportion, the Federal Government’s Small Business Administration announced a program to grant $1 million in small business loans in Baltimore following the riot. See: http://www.baltimoresun.com/news/maryland/baltimore-city/bs-md-ci-business-riot-recovery-20150529-story.html

[4] Al Baker, J. David Goodman, and Benjamin Mueller, “Beyond the Chokehold: The Unexplored Path to Eric Garner’s Death,” NYT, 14 June 2015.

Education as an Investment.

Posted on June 13, 2015 by jsh54

The median survival rate for metastatic breast cancer is three years from time of diagnosis. However, as any recently-diagnosed patient—or their desperate SO—will tell you, statistics are agglomerations of individual cases. They don’t tell you YOUR fate. It’s the same with college degrees. On average, over a lifetime people with college degrees earn a lot more than do people without college degrees. That doesn’t mean that all college graduates earn more than all non-graduates. That also doesn’t mean that the extra income earned is worth the cost of getting the degree.[1] Peter Cappelli, who teaches at the University of Pennsylvania’s Wharton School, elaborates on a theme he first sketched out in a WSJ Op-Ed in November 2013.[2] Cappelli’s deeply-researched book addresses a raft of issues of the day.

The “Great Recession” is but the latest shock to the American economy (and the “American Dream” come to that). It led students to focus on career-oriented majors as defined by Labor Department projections, rather than a broad liberal arts education; their parents usually resolutely back them up in this choice. This has been very distressing to broad liberal arts educators and to the skinny ones as well. Cappelli warns that many of these majors are so knowledge-specific and so likely to be drowned in new graduates that students are actually doing themselves long-term harm. For example, 30 percent of recent engineering graduates couldn’t get jobs in engineering. Capelli argues that liberal arts degrees often are actually a better preparation for adapting to unexpected developments than are the loud-mouthed “career” majors.

American students (and their families in equal measure) pay about four times as much for a college degree as do students in other Western industrial countries. A lot of this is financed through debt, rather than from savings. Senator Bernie Sanders has floated the idea of a free college education at America’s public colleges. Both those who graduate and those who fail to graduate can find themselves burdened by a lot of debt. Naturally, consumers have become enraged at the sellers. Conservatives have argued that the expansion of financial aid and borrowing by students has just allowed colleges to raise their tuition. Critics rightly point out that the administrative component of college staffs have grown 50 percent faster than have instructional staff. As presented to the public this fact conjures visions of Rolex-adorned Assistant Vice Deans for Something-or-Other. In fact, most of the growth is in support staff dealing with the reality that Johnny can’t read, claims he will go to pieces under the pressure of college, and only came here to play baseball anyway.[3]

One of the reasons that college educated people do better than the others is employer-bias in hiring. Currently, at least 40 percent of graduates end up in jobs that don’t require a degree. Employers still preferred them to people without degrees. (Nearly 60 percent of parking lot attendants have some college.[4]) What happened to the other job applicants? They got shoved farther down the income ladder, displacing teen-agers just trying to get some work experience and pocket money. This displacement may be part of the explanation for the mounting drive for a higher minimum wage.

Above all, there is an evident mismatch between American education and the economy.

[1] Peter Cappelli, Will College Pay Off? A Guide to the Most Important Financial Decision You will Ever Make (PublicAffairs, 2015).

[2] See “Major Uncertainty,” November 2013.

[3] See the Cardale Jones Twitter mishagosh for an extreme example of the latter. https://en.wikipedia.org/wiki/Cardale_Jones#Twitter_controversy

[4] They can’t all be living hand-to-mouth while they write the Great American Novel.

American Public Opinion in June 2015.

Posted on June 8, 2015 by jsh54

In 2014, 30 percent of people described themselves as social liberals, while 34 percent described themselves as social conservatives. That totaled 64 percent of the vote, while the other 36 percent were mostly “moderates.” In June 2015, 31 percent of people described themselves as social liberals, while 31 percent described themselves as social conservatives.[1] That totaled 62 percent of the vote, while the other 38 percent were mostly “moderates.”

What’s a “social liberal”? The share of the population favoring social liberal causes greatly exceeds the share identifying as social liberals. If the social liberals are added to the moderates in the two polls, we end up with totals of 65 percent in 2014 and 69 percent in 2015. Some 55 percent favor legalizing recreational marijuana, support gay marriage, and say that it is acceptable for two gay men to kiss in public.[2] All these would once have been identified with social liberalism. If it is posited that social conservatives would oppose these measures, then that makes it possible to conjecture how many “moderates” hold social liberal views. If 30 percent identified as social liberals in 2014 and 55 percent of the total favored the liberal causes, then 25/36 of the moderates supported these social liberal causes. Applying the same calculations to 2015, 24/38 of the moderates support these social liberal causes.

To belabor the obvious, there has been a shift of public opinion toward social liberal causes between 2014 and 2015: liberals added 1 percent who migrated from the moderates, and the moderates picked up 3 percent who migrated from conservatives. Any Republican wager on a socially conservative position in 2016 looks to be a loser. At the same time, the social liberal causes mentioned in the polls are all about enhancing individual rights, especially with regard to identity. The polling doesn’t tell whether the moderates will also support social liberal causes when it comes to expanding social welfare.

In June 2014, 53 percent of Americans regarded Hillary Clinton as trustworthy. Then came the e-mail story and the questions about the Clinton foundation accepting donations from foreign donors with business before the State Department. In June 2105, 41 percent of Americans regarded Hillary Clinton as trustworthy.[3] As views on her trustworthiness declined, her favorability numbers went up. In April 2015, 36 percent had a favorable view of Hillary Clinton; in May 2105, 42 percent had a favorable view[4]; in June 2015, 45 percent had a favorable view. Thus, although 45 percent of the June 2015 polling sample viewed her favorably, only 41 percent viewed her as trustworthy. So, some 4 percent of voters—all of them Democrats?—are rubbing their hands together and going “she’s a liar, good!” The same percentage, 49 percent, do not regard her as trustworthy (not trustworthy + don’t know) and view her unfavorably. It is likely that the people who distrust Clinton are divided between Republicans, Independents, and dissident Democrats. The size of the dissident Democrat community is nothing to be sneezed at. In June 2015, 45 percent of self-identified Democrats believed that their party had too few candidates running for President in 2016[5], while 52 percent were pretty sure of for whom they would vote.[6] The dissident Democrats are never going to vote Republican. If push comes to shove, they will hold their nose and vote for Clinton.

[1] “Poll Watch,” The Week, 5 June 2015, p. 19.

[2] “The way we were in 2014,” The Week, 31 December 2014, p. 12. Curiously, 72 percent are OK with lesbians kissing in public. This groups all social liberals with all moderates and about one in seven social conservatives. Probably explained in part by the popularity of lesbian porn among men.

[3] “Poll Watch,” The Week, 12 June 2015, p. 17.

[4] “Poll Watch,” The Week, 15 May 2015, p. 17.

[5] In particular, there is reason to think that most Democrats would be happier if a different Clinton was running for President. One poll reported that 42 percent listed Bill Clinton as the most admired president of the last quarter century. At 18 percent President Obama ranked second. See: “The way we were in 2014,” The Week, 31 December 2014, p. 12.

[6] “Poll Watch,” The Week, 5 June 2015, p. 19.

More degrees than a protractor factory.

Posted on June 8, 2015 by jsh54

Senator Bernie Sanders favors making a BA at the 629 public four year colleges a free good for all “qualified” applicants. He says that this would be on the European model. https://www.facebook.com/OccupyDemocrats/photos/a.517901514969574.1073741825.346937065399354/844186619007727/?type=1&theater

What is the American model?

	Number	Enrollment
Public 4-year institutions	629	6,837,605
Private 4-year institutions	1,845	4,161,815
Public 2-year institutions	1,070	6,184,229
Private 2-year institutions	596	303,826
Total	4,140	17,487,475
Undergraduate		14,473,884
Graduate		2,097,511
Professional		329,076

See: http://www.infoplease.com/ipa/A0908742.html

What is the European model?

European universities.

Country. Universities. Students. Percent.[1] Cost. Drop-out rate.

Britain. 115 2.6m. 43 E10,500. 8.6 percent.

France. 80 2.3m. 39 E 177. 42.0 percent.

Italy. 79 1.8m. 43 E1.5-3,000 45.0 percent.

Germany. 108 2.4m. 42 Free. 28.0 percent.

Poland. 98 1.8m. 54 N.A. 24.0 percent.

Source: http://www.theguardian.com/world/interactive/2012/may/31/european-students-statistics-interactive

The obvious lesson to draw here is that if something costs you something, you value it more. Where college costs are high, the drop-out rate is low; where college costs are low, the drop-out rate is high. “Eh, I’ll take a shot at it instead of looking for work, but if the professors want real work (or if the girls won’t come across), I’ll bag it.”—Anonymous.

http://www.bbc.com/news/education-11438140

So, France, Germany, and Italy all have virtually free tertiary education, BUT they spend one-third to one-half of what the USA does. How do they make it work? They admit a lot of kids from good schools, then throw them in the deep end of the pool and tell them to swim for it. No hand-holding. No office hours with professors. No counseling. No Writing Centers and Math Centers for free tutoring. No “second chance” when young Bobby messes up. You need help writing a paper? Hire a grad student with your own money. Short of money and you don’t want to admit to your parents that you’ve messed up? Try dealing hash. (I’m told that the “Milkweg” in Amsterdam used to be a good place to go, but how would I know? See: http://en.wikipedia.org/wiki/Melkweg ). Also, no sports teams. No dorms and dining halls. No marching bands. Just cafes on the Left Bank and Gitanes.

So, one follow-on question is which countries have people with degrees, rather than just having attended college?

Germany and Italy have lower graduation rates than does Britain or the United States.

Obviously, there is a lot more that can be done with this data, but this is a start. For one thing, why isn’t Sanders going off on the Finnish model? Nokia and mink ranches: let’s build our future on that.

Your thoughts?

[1] Percent of “young people” (otherwise undefined) in tertiary education of any sort.

Just another BRIC in the wall.

Posted on June 3, 2015 by jsh54

The surge in economic globalization since 1990 raised up some countries as potential rivals to the long-dominant Western industrial nations. In particular, Brazil, Russia, India, and China seemed poised to equal or surpass the economic power of the old leaders before the middle of the 21^st Century. They have been labeled the “BRIC” countries.[1] Unfortunately, “many’s the slip between the cup and the lip.”

As late as 2010, Brazil possessed an apparently dynamic economy.[2] Great results were expected from the oil reserves discovered off-shore[3] and the economy was growing at a rate of 7 percent a year. The government took advantage of the boom in the economy to embark on a generous social policy: cash-transfers and easy credit both raised 40 million Brazilians into the middle-class and expanded consumption. Government deficits, rather than higher taxation on the wealthy, expanded to finance these policies. So long as the economy continued to expand, however, there seemed little danger from these please-everyone policies.

However, aspirations aren’t the same as achievement. Brazil remained a chiefly primary-product (agriculture, mining, forestry) economy. Sugar, soybeans, coffee, and oil were all major exports. Therefore, the Great Recession hit Brazil’s export sector very hard: Chinese and German imports of Brazilian goods slumped; the prices for its main crops sank, some by as much as a third.

By 2015, the whole process seemed to have gone into reverse: economic growth has stalled and teeters on the edge of recession; government debt has expanded at an alarming rate as it tries to keep promise made in happier times, but bond-rating agencies have down-graded Brazilian government debt; the nominal inflation rate is 8 percent a year, but interest rates are at 13 percent (so people may believe that the inflation rate is higher than official statistics claim). The standard solution to such problems is one of “austerity”: cut government spending and increase tax receipts to reduce borrowing. Cutting government spending mean in large part reducing the pay and benefits of public sector employees. They aren’t happy with this reversal of course.

To make matters worse, corruption is endemic in many developing countries and that includes Brazil. Soon after the Workers Party, under President Luis Lula da Silva, took power in 2003, an official investigation began into accusations that the Workers Party had engaged in bribery of legislators to get the government’s policies through the legislature. In 2013 Brazilian police began an investigation into the giant state-owned oil company, Petrobras. The reports so far indicate that Petrobras has been over-paying contractors, who then kick-back part of the profit to the Workers Party. Police arrested the Party’s treasurer, along with many other politicians and businessmen. A proposal by current president Dilma Rousseff, Lula da Silva’s successor, to limit the ability of prosecutors to investigate charges of corruption against politicians stinks to high Heaven. Many Brazilians are enraged over austerity and corruption.

The recent performance of the BRIC economies has been scattered, but long-term performance is what matters for shifting the world balance of power and prosperity.

[1] See: http://en.wikipedia.org/wiki/BRIC

[2] “Brazil’s economic catastrophe,” The Week, 5 June 2015, p. 11.

[3] Early—and apparently exaggerated–reports on exploration of off-shore reserves suggested that there is $1 trillion worth of oil and gas. However, off-shore drilling almost forty miles out in the Atlantic has its challenges and much more modest estimates of the extent of the reserves have begun to come in. The recent decline in world oil prices also has reduced the value of whatever reserves do exist.

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