Wednesday, June 29, 2011

Free Speech under Siege - Robert Skidelsky

Source:http://www.project-syndicate.org/commentary/skidelsky42/English

AUTHOR INFO

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University.

LONDON – Recently, at a literary festival in Britain, I found myself on a panel discussing free speech. For liberals, free speech is a key index of freedom. Democracies stand for free speech; dictatorships suppress it.

When we in the West look outward, this remains our view. We condemn governments that silence, imprison, and even kill writers and journalists. Reporters Sans Frontières keeps a list: 24 journalists have been killed, and 148 imprisoned, just this year. Part of the promise we see in the “Arab Spring” is the liberation of the media from the dictator’s grasp.

Yet freedom of speech in the West is under strain. Traditionally, British law imposed two main limitations on the “right to free speech.” The first prohibited the use of words or expressions likely to disrupt public order; the second was the law against libel. There are good grounds for both – to preserve the peace, and to protect individuals’ reputations from lies. Most free societies accept such limits as reasonable.

But the law has recently become more restrictive. “Incitement to religious and racial hatred” and “incitement to hatred on the basis of sexual orientation” are now illegal in most European countries, independent of any threat to public order. The law has shifted from proscribing language likely to cause violence to prohibiting language intended to give offense.

A blatant example of this is the law against Holocaust denial. To deny or minimize the Holocaust is a crime in 15 European countries and Israel. It may be argued that the Holocaust was a crime so uniquely abhorrent as to qualify as a special case. But special cases have a habit of multiplying.

France has made it illegal to deny any “internationally recognized crimes against humanity.” Whereas in Muslim countries it is illegal to call the Armenian massacres of 1915-1917 “genocide,” in some Western countries it is illegal to say that they were not. Some East European countries specifically prohibit the denial of communist “genocides.”

The censorship of memory, which we once fondly imagined to be the mark of dictatorship, is now a major growth industry in the “free” West. Indeed, official censorship is only the tip of an iceberg of cultural censorship. A public person must be on constant guard against causing offense, whether intentionally or not.

Breaking the cultural code damages a person’s reputation, and perhaps one’s career. Britain’s Home Secretary Kenneth Clarke recently had to apologize for saying that some rapes were less serious than others, implying the need for legal discrimination. The parade of gaffes and subsequent groveling apologies has become a regular feature of public life.

In his classic essay On Liberty, John Stuart Mill defended free speech on the ground that free inquiry was necessary to advance knowledge. Restrictions on certain areas of historical inquiry are based on the opposite premise: the truth is known, and it is impious to question it. This is absurd; every historian knows that there is no such thing as final historical truth.

It is not the task of history to defend public order or morals, but to establish what happened. Legally protected history ensures that historians will play safe. To be sure, living by Mill’s principle often requires protecting the rights of unsavory characters. David Irving writes mendacious history, but his prosecution and imprisonment in Austria for “Holocaust denial” would have horrified Mill.

By contrast, the pressure for “political correctness” rests on the argument that the truth is unknowable. Statements about the human condition are essentially matters of opinion. Because a statement of opinion by some individuals is almost certain to offend others, and since such statements make no contribution to the discovery of truth, their degree of offensiveness becomes the sole criterion for judging their admissibility. Hence the taboo on certain words, phrases, and arguments that imply that certain individuals, groups, or practices are superior or inferior, normal or abnormal; hence the search for ever more neutral ways to label social phenomena, thereby draining language of its vigor and interest.

A classic example is the way that “family” has replaced “marriage” in public discourse, with the implication that all “lifestyles” are equally valuable, despite the fact that most people persist in wanting to get married. It has become taboo to describe homosexuality as a “perversion,” though this was precisely the word used in the 1960’s by the radical philosopher Herbert Marcuse (who was praising homosexuality as an expression of dissent). In today’s atmosphere of what Marcuse would call “repressive tolerance,” such language would be considered “stigmatizing.”

The sociological imperative behind the spread of “political correctness” is the fact that we no longer live in patriarchal, hierarchical, mono-cultural societies, which exhibit general, if unreflective, agreement on basic values. The pathetic efforts to inculcate a common sense of “Britishness” or “Dutchness” in multi-cultural societies, however well-intentioned, attest to the breakdown of a common identity.

Public language has thus become the common currency of cultural exchange, and everyone is on notice to mind one’s manners. The result is a multiplication of weasel words that chill political and moral debate, and that create a widening gap between public language and what many ordinary people think.

The defense of free speech is made no easier by the abuses of the popular press. We need free media to expose abuses of power. But investigative journalism becomes discredited when it is suborned to “expose” the private lives of the famous when no issue of public interest is involved. Entertaining gossip has mutated into an assault on privacy, with newspapers claiming that any attempt to keep them out of people’s bedrooms is an assault on free speech.

You know that a doctrine is in trouble when not even those claiming to defend it understand what it means. By that standard, the classic doctrine of free speech is in crisis. We had better sort it out quickly – legally, morally, and culturally – if we are to retain a proper sense of what it means to live in a free society.

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University.

Gov't misled public over RM74bil subsidy burden?

Source: http://www.freemalaysiakini.com/modules.php?name=News&file=article&sid=14991&mode=thread&order=0&thold=0

'Gov't misled public over RM74bil subsidy burden'
Tuesday, June 28 @ 00:31:06 CDT

An expert reveals that education and healthcare were included - which are the government’s responsibility to provide.

The federal government had "misled" the public when the Performance, Management and Delivery Unit (Pemandu) stated it had footed a subsidy bill of RM74 billion in 2010, an economist said today.

NONESpeaking at the Selangor 2012 budget talks in Subang Jaya today, Nottingham University visiting associate professor Subramaniam Pillay said 54 percent of that bill was for education and healthcare, which is in fact government responsibility.

"All governments in the world subsidise different items for different people. But education and health are what economists call 'public goods' and are the responsibility of the government,” said Subramaniam who retired as Nottingham University Business School head last year.

"All developed countries around the world subsidise healthcare heavily, except the US, but (President Barack) Obama recently tabled a Healthcare Bill."

Take the two big-ticket items away and the bill was only RM31.1 billion, of which only food subsidies (RM3 billion or about 2 percent of the federal budget) went directly to the rakyat.

He said much of the RM23.7 billion fuel and energy subsidies paid in 2010 had gone to gas subsidies to independent power producers.

"For infrastructure, all the subsidies go to (highway concessionaires) not because they need it but because they signed an agreement (with the government), which was stupid. It's not a subsidy for the rakyat," he said.

The Pemandu figure of RM74 billion has been cited by the government to justify its subsidy cuts on petrol, natural gas, diesel and food items.

Tuesday, June 28, 2011

China’s roaring growth cannot last indefinitely

http://www.economist.com/node/18832106?fsrc=scn/fb/wl/ar/bewarethemiddleincometrap

Growth prospects

Beware the middle-income trap

China’s roaring growth cannot last indefinitely




CHINA’S LEADERS ARE usually shy of telling things as they are, but the prime minister, Wen Jiabao, put it bluntly when he described China’s economy in 2007 as “unstable, unbalanced, unco-ordinated and unsustainable”. Some foreigners may extol China’s handling of the global financial crisis, but Mr Wen has stuck to his guns. The phrase even crops up in China’s recently adopted five-year economic plan, standing out as an indirect admission of the failings of his own administration and as a marker for the next.

For all its problems, China in the coming 10-15 years is still likely to reach several symbolic milestones. The IMF predicts that in 2016 it will become the world’s largest economy on a purchasing-power-parity basis. The Economist Intelligence Unit, a sister organisation of this newspaper, reckons that on the basis of market exchange rates China will attain that glory in 2020. By the end of this decade, according to Daiwa Securities, GDP per person in Shanghai, China’s richest city, could be almost the same as the average for America in 2009.

And for all the bubbliness of China’s property market and the reckless spending of local governments, the country will probably avoid a crippling debt crisis. China has foreign-exchange reserves of more than $3 trillion and ran a modest budget deficit of 2.5% of GDP last year. Its worries are longer-term. The economy will certainly begin to slow in the next few years after three decades of nearly 10% average annual growth. Exports will be constrained by depressed Western markets, and investments in fixed assets will produce diminishing returns. But the slowdown will be less pronounced if the government succeeds in boosting consumption as a new growth engine.

Arthur Kroeber of GK Dragonomics, a consultancy, says the country still enjoys a considerable tailwind from urbanisation and a huge potential for productivity gains as it adopts new technology. He says a scattering of white-elephant projects (including the odd ghost-town of uninhabited new housing and office developments) does not concern him: “There’s no question that there are excesses, but the basic thing they are doing is sensible.” Louis Kuijs of the World Bank agrees. He sees the trend growth rate easing over the coming decade, but not dramatically. New infrastructure is generally being put to good use. Even though investment as a proportion of GDP is high, China’s accumulated investment in fixed assets is still low. Real wages have been rising strongly, which should help boost consumption. Standard Chartered, a bank, says that although China’s public debt is considerably higher than the 17% of GDP officially cited, it remains manageable. Even after allowing for bad loans to local-government investment companies, it runs at 80% of GDP, the bank estimates, about the same as Britain’s last year and well below Greece’s.

Chinese leaders are perennial worriers about inflation, not least because of its role in fuelling the discontent that led to the Tiananmen Square protests of 1989. But even though it rose to 5.5% in May, considerably above the government’s 4% target for the year, it shows little sign as yet of returning to previous highs of about 20% in 1988 and more than 25% in 1994. It also has a useful political side-effect, easing some of China’s tension with America over the value of its currency. America’s Treasury says that because of the higher inflation rate in China, the yuan is in effect appreciating against the dollar by more than 10% a year. Chinese leaders have been debating whether to push interest rates higher, but Mr Kuijs says Chinese policymakers have become more tolerant of medium rates of inflation.

Yukon Huang of the Carnegie Endowment for International Peace, a think-tank in Washington, DC, says doomsayers are wrong to be so concerned about the fall in the ratio of household consumption to GDP. True, it has dropped from around 50% two decades ago to 35% today, among the lowest levels in the world, whereas investment is among the world’s highest; but such a decline, he says, is not unusual for an industrialising country. The efficiency of stimulus spending may be questionable, “but how efficient do you expect stimulus money to be?” He thinks growth could remain at 7-8% for a long time.

The bears’ grumbles

But many analysts are far less sanguine. Some worry that China could be approaching a Japanese-style crisis: a boom in exports and investment along with bubbly property markets, followed by many years of stagnation. In China’s case the added sting would be that it has not yet got rich. Officials and experts debate endlessly whether the country is slowly heading towards a “middle-income trap”. China was already a lower-middle-income country last year, with a GDP per person of around $4,400. The fear is that it might suffer the same stagnation and turbulence as Latin American economies in the 1980s and 1990s.

The drafters of the new five-year plan adopted in March were clearly hoping to head off such a calamity. Five-year plans have evolved since the Mao era when they were used by the government to micromanage the economy, but they are still meant to play a crucial role in setting the economic tone. “China model” fans love them because, at least in theory, they commit leaders to an economic strategy that will not be undermined by the chop-and-change policymaking of democracies. When Mr Wen’s successor takes over in 2013, the current plan will still have more than two years to run. It calls for faster change in the “pattern of economic development” to address the imbalances, and sees boosting consumption as critical to this.

Mr Wen himself is no touter of a China model. His previous five-year plan, which took effect in 2006, was also intended to shift the economy away from too much reliance on exports and investment. It set a target of 7.5% annual growth in GDP for the plan period, against 8% for the previous one. Instead, the rate accelerated to about 11% a year, compared with an average of 9.5% in the first half of the decade. Household consumption as a proportion of GDP fell sharply. And China’s 4 trillion yuan stimulus programme (about $620 billion at current exchange rates), launched in November 2008, allowed banks to lend almost at will, mostly to state-owned enterprises, raising the prospect of a flood of new bad debt.

Despite Mr Wen’s calls for more evenly shared prosperity, the gap between rich and poor and between cities and countryside has continued to widen. Since he took office in 2003, absolute poverty has dropped markedly. But the number of people in relative poverty (with 50% or less of the median income) grew from 12.2% of the population to 14.6% between 2002 and 2007, according to research by Terry Sicular of the University of Western Ontario and Li Shi and Luo Chuliang of Beijing Normal University. By the end of the plan period the goal of establishing a “harmonious socialist society”, a favourite catchphrase of Mr Wen’s and Mr Hu’s, appeared even more remote than at the beginning. Protests over local injustices, already running at tens of thousands a year, were becoming ever more frequent.

The new five-year plan adopted in March notes that the “external environment” for China’s development has become “more complicated”. In other words, markets abroad do not look promising. It calls for a “strategic readjustment” in China’s growth model, putting even more emphasis than its predecessor on domestic demand, especially consumption. It still envisages big investments, but in the hope that these will boost household consumption in the longer term. It promises 36m new “affordable housing” units, more than Britain’s entire housing stock. The hope is that cheaper homes will make it easier for the Chinese to get into the housing market without having to save quite so much. And the government has pledged to ramp up spending on health, education and other social-welfare programmes. Eventually too this could encourage people to save less and consume more.

The government also wants the high-speed railway network, already the world’s longest at 8,300km, to quintuple in length by 2015. Beijing, having completed one of the world’s largest airport terminal buildings in 2008, will get a whole new airport. So will 54 other cities, increasing the total number with airports by nearly one-third. These investments, officials hope, will help to boost urban growth, and with it consumption. Infrastructure targets are usually met in China because governments have little trouble with not-in-my-backyard protests.

But some economists believe this is all too much. Among the bears is Michael Pettis of Peking University, who believes that investments are becoming increasingly inefficient and that China is heading towards a “brick wall” of government debt. Growth, he says, will remain high in the early half of the decade but could drop off sharply thereafter as loans turn sour. Even in the best case, he says, growth will fall below 5%. Victor Shih of Northwestern University also points to a looming debt problem, exacerbated by the recklessness of local governments during China’s stimulus-spending spree. Not being allowed to borrow directly, many of them set up companies to borrow on their behalf, using land as collateral. “There is a hidden danger of an asset bubble and [we] are facing a certain financial risk,” wrote Yu Peiwei of the party’s Policy Research Office in January. If the bubble bursts, land prices could plummet, leaving the banks dangerously exposed.

Bingeing on investment

Nouriel Roubini of New York University, a chronic bear, is in this camp. In a recent article he argued that the brick wall will most likely be hit between 2013 and 2015. He noted that China was spared a recession in the wake of the financial crisis because investment in fixed assets, such as transport infrastructure and factories, increased from an already very high 42% of GDP in 2008 to nearly 50% in 2010. No country, he says, could be productive enough to invest 50% of GDP in new fixed assets without eventually facing “immense overcapacity and a staggering non-performing loan problem”.

It is not just foreigners who worry. Ge Zhaoqiang, a senior researcher at China Merchants Bank, gave warning in May that China’s economy had become “seriously distorted” by prolonged dependence on high levels of investment. There was now a risk, he said, of an economic downturn “unprecedented in the past 30 years” with possibly damaging consequences for China’s social and political stability.

If China is not to stagnate, it will have to make a bigger effort to persuade rural dwellers to keep coming to the cities as its population ages ever more rapidly. In 1980 one-fifth of China’s people lived in urban areas. Today the figure is 49.7%. Very soon the country will become predominantly urban, with over 51.5% forecast to be living in urban areas by the end of the five-year plan. This implies a slower pace of urbanisation than in the past decade. For once, however, the government is not setting its goals too low. In future urbanisation will indeed become harder.

Friday, June 24, 2011

The only real solution for budget deficits: growth

Source:http://www.guardian.co.uk/commentisfree/cifamerica/2011/may/10/economy-public-finance

The only real solution for budget deficits: growth

Scarcely a decade ago, the US was running a budget surplus, with unemployment at 4%. It had little to do with cuts or taxes


Former U.S. president Bill Clinton attends a session at the WEF in Davos
Former President Bill Clinton at the WEF meeting in Davos, 2011. He left government in 2000 with federal finances in surplus – thanks to a booming 4% rate of economic growth. Photograph: Vincent Kessler/REUTERS

People in Washington have incredibly bad memories. The last time that the United States balanced its budget was just a decade ago. Even though this is not distant history, almost no one in a policymaking position or in the media seems able to remember how the United States managed to go from large deficits at the start of the decade to large surpluses at the end of the decade.

There are two often-told tales about the budget surpluses of the late 1990s: a Democratic story and a Republican story. President Clinton is the hero of the Democratic story. In this account, his decision to raise taxes in 1993, along with restraint on spending, was the key to balancing the budget.

The hero in the Republican story is News Gingrich. In this story, the Republican Congress that took power in 1995 demanded serious spending constraints. These constraints were ultimately the main factor in balancing the budget.

Fortunately, we can go behind this "he said/she said" to find the real cause of the switch from large budget deficits to large surpluses. This one is actually easy.

In the spring of 1996, the non-partisan Congressional Budget Office (CBO), whose numbers are taken as being authoritative in Washington,projected that the government would have a deficit of $244bn in 2000, or 2.7% of GDP (pdf). Instead, the government actually ran a budget surplus in 2000 of almost the same size. This amounted to a shift from deficit to surplus of more than 5.0 percentage points of GDP; an amount that is equal to $750bn given the current size of the economy.

The reason for picking the spring of 1996 as the starting point is that this is after President Clinton's tax increases and spending restraints were all in place. It was also after all the spending restrictions put in place by Gingrich Congress had already been passed into law. In other words, the CBO knew about all of the deficit reduction measures touted by bothpolitical parties and it still projected a $244bn budget deficit for 2000. Furthermore, the changes to the budget in the subsequent years went the wrong way. According to CBO's assessment, the legislated changes between 1996 and 2000 actually added $10bn to the budget deficit.

The trick that got us from the large deficit projected for 2000 to the surplus that we actually experienced in that year was, in fact, much stronger than projected growth. CBO projected that growth would average just 2.1%. It actually averaged almost 4.3%. Instead of ending the period with an unemployment rate of 6.0%, unemployment averaged just 4.0% in 2000.

It would be helpful if policymakers paid more attention to this history, since it should remind them that even if their primary concern is the deficit, and not economic growth and low unemployment, economic growth may still be the best way to reach their deficit targets. It is all but impossible to balance the budget when the unemployment rate is above 8.0%. By contrast, if we got the unemployment rate back down below 5.0% (where it was before the onset of the recession), we would get most of the way back to a balanced budget – even with no additional changes to the budget.

If the deficit hawk crew could remember back to the 90s, then they might be pushing more aggressively for measures to spur growth. This would include not only fiscal stimulus, but also more expansionary measures from the Federal Reserve board. The Fed has consistently been restrained in its measures to boost the economy because the whining of the inflation hawks.

The budget hawks should realise that if they really care about deficits, the inflation hawks are their enemies. They should be pushing for more expansionary monetary policy – steps like targeting long-term interest rates or even a somewhat higher inflation rate. There is no reason that the Fed should not be pursuing this path, at least until there is some evidence of inflation posing a problem.

The Fed, together with the Treasury, could also be pushing for a lower dollar. A monetary policy that is explicitly designed to reduce the value of the dollar would provide a boost to net exports and thereby to economic growth.

Finally, if the Fed opted to hold the bonds that it has purchased through its various quantitative easing programmes, it could directly reduce the deficit. The reasoning here is that the interest paid on these bonds is paid to the Fed and then refunded to the Treasury. It therefore leads tono net interest burden to the government. If the Fed bought and held $3tn in government bonds, it would lead to interest savings of close to $1.8tn over the course of the next decade.

If the deficit hawks had better memories and a bit of creativity, they would be talking about items like faster growth and increasing the Fed's holdings of government bonds. Unfortunately, our policymakers don't do very well in either the memory or the creativity department. As a result, we are instead discussing the privatisation of Medicare, the block-granting of Medicaid and cutting social security. That's Washington for you.