The West Is Caught In Middle East Chaos

WASHINGTON – The Paris terror attacks lead to Syria, to the Arab Spring, to the Sunni-Shia conflicts, to al Qaeda, and to the rise of ISIL and of the Caliphate. This is a huge mess; and there are no quick solutions. The real issue is not about catching a few bad guys. The issue is in endless religious strife in which opposing militants in the Middle East have long lists of mortal enemies. The West is on many of them.  

Chaos 

Here is the sad truth. The Middle East and parts of North Africa are in total chaos. Within many societies there is a structural inability to chart a rational course towards modernity focused on education, enterprise, more gender equality, inclusiveness, genuine political freedoms, and religious tolerance.

No viable path to modernity 

This inability to choose and pursue modern, secular development models fuels economic stagnation, poverty and despair. Prolonged stagnation fuels resentment. A great deal of this resentment is now channeled into religiously inspired movements.

These movements preach violent actions against various enemies: rapacious and corrupt governments, other religious sects, Christians, you name it. According to the militants, only the physical destruction of their enemies will bring about true religious piety, peace, justice, and prosperity.

Of course, none of this is true. What is true is that, inspired by this folly, religious believers have created a disheartening cycle of violence that generates violent reactions, followed by more violence.

Enter the Caliphate 

Without exaggeration, this is chaos. At least in some parts of the region, (Syria, Lebanon, Iraq, and Yemen in the Middle East; Libya in North Africa), unmanageable chaos. The creation of the self-described Caliphate in parts of Syria and subsequently Iraq made this turmoil even worse, in as much as it created a tangible symbol of what is viewed by some Sunni militants as a successful religious revolution.

The West is caught in this mess 

Deep down, the West has really nothing to do with any of this. However both Europe and the US are caught into this trap because of old historic ties to the Middle East and more recent connections related to their dependence on oil and gas produced in the Region.

In the case of the US, there were also high-profile, complex relations with the discredited regime of the Shah in Iran. And then there were military interventions: the first Iraq war in 1991, and then the occupation of Iraq in 2003.

Europe is exposed 

In the case of Europe, there is a mix of old colonial ties and more recently a huge migration into Europe from the Middle East and North Africa. In France alone, (population almost 65 million), there are about 5 million Muslims, most of them of Arab descent. In Belgium, Muslim are 6% of the population, in Austria 5.7%, in the Netherlands 5.5%.

Anyway, you get the picture. Many of these immigrants, for whatever reasons feel discriminated against, marginalized, humiliated, or worse. Therefore, many of them look at the radical movements in the Middle East as an answer to their quest for meaning and belonging.

Disaffected young Muslims 

And so here you can see how the Middle East/North Africa religion-inspired chaos has been exported into Europe. There is a back and forth of French-born, Belgium-born, UK-born would-be militants who have traveled to Syria or elsewhere. They have been recruited. They now believe that exporting Jihad into Europe is a good way to advance their cause, because Europe is somehow responsible for the plight of the Arab World and beyond.

The road to Paris 

And this leads us to the tragic Paris massacres perpetrated by some young French and Belgians terrorists of Middle Eastern origin.

Sadly, because of all the above, it should be reasonably clear that there are no quick fixes to any of this. The Middle East will be in turmoil for who knows how long. The ISIL Caliphate can be attacked and destroyed. But, even assuming a successful operation, the attackers should have a workable game plan on how to reintegrate the Sunnis who lived under ISIL into the main stream. Good luck with that.

Mission Impossible 

As for “Combating Terror”, this is almost “Mission Impossible”. As I indicated above, in Europe there are tens of millions of Muslims. Even assuming that only a tiny fraction of them are potentially dangerous individuals willing to engage in acts of terror, police authorities and intelligence agencies simply do not have the resources to sift through millions of people and identify all the bad guys before they act.

In the US the picture is a little better because there are far fewer Muslims, and therefore not so many individuals who may represent a potential threat.

Be prepared to absorb the consequences

Still, be that as it may, the West has to be prepared to absorb the violent consequences of an enormous crisis affecting many countries. Terrorism is the most unfortunate manifestation of the intellectual and moral chaos now rampant in the Middle East. And it is very hard to protect ourselves against it, in large part because there are too many potential suspects, and in part because we live in free societies in which individual liberties are protected and police powers are limited by the law.

Allow enhanced police powers? 

Of course, we could collectively and indefinitely do what France just did in the aftermath of the Paris attacks. Declare an open-ended state of emergency. This would allow law enforcement agencies to do pretty much all they want, including arrests without warrants, search and seizure operations, and what not. Forget about “probable cause”. But this is not doable. We love our freedoms.

Free but vulnerable

Therefore, as we want to stay free, we also have to accept our inherent vulnerability. Nobody from the outside can fix the Middle East. And its turmoil will go on and on. And terrorism aimed at Western targets is unfortunately a manifestation of this turmoil.




Will The Fed Raise Interest Rates? May Be Not

WASHINGTON – Until a couple of days ago, most economists bet that the US Federal Reserve would finally begin to raise interest rates at its December 2015 meeting, this way ending the anomaly of the longest era of zero interest in modern history.

Promising picture

The general picture looked propitious for such a move. The US economy just added 271,000 jobs in October, many more than expected. Wages are going up a bit. Unemployment is down. Overall, it seemed that the new data indicated that a strong economy would fuel more inflation. And this new trend would justify raising interest rates.

What will happen to stocks? 

And what about the consequences? Well, here it gets tricky. This Fed move on interests would signal to stock investors that the ground may begin to shift. Higher rates mean that in a short while, (depending on how fast the Fed moves to bring interest rates from zero back to a historic norm of about 4%), other investment instruments like savings accounts or bonds will become once again more attractive.

In short, if it is indeed true that this unprecedented era of zero interest created a stock market bubble because it forced people to move away from other forms of investments, then we can expect that its end may bring about a stock market decline, or worse.

Right now, people have an extra incentive to invest in stocks because –thanks to zero interest rates decreed by the Fed– it is the only game in town. You cannot make any money by placing your funds in savings accounts. When interest rates go up again, people will have choices.

Fed watching 

Because of all this, these days markets move up or down mostly on the basis of what analysts believe the Fed will or will not do, and how soon. This happens because stocks are sensitive to interest rates moves, and also because there is no action on any other economic policy front that may trigger market reactions.

Paralysis in Washington 

Washington is paralyzed by political dissent. Therefore, no chance of anything happening there that would influence economic policies and therefore economic and investment decisions. No serious public spending reform plan on the agenda, no changes to major entitlements, and no tax reforms that would modify economic incentives.

In other words, nothing is coming from Washington that would signal markets that soon it will be easier to go into business, create new companies, invest in them and profit from them.

Will the Fed move?

So, we are left with Fed watching. As noted above, looking at the positive signs from the US economy that were streaming in in the last few days, it looked as if the Fed would finally have the margin to move.

Indeed, on the surface, the US is doing fine. The stock market is buoyant. Lots of new jobs added in October. More Americans are employed. Higher interest rates, phased in a little bit at a time, would not smother this fairly solid economy.

Outlook not so good anymore 

Well, this was only a few days ago. But now things do not look so good anymore. For example, let’s take a look at commodities. By any measure the sector, a close proxy of industrial activities, looks awful. The Bloomberg Commodity Index is now down to its lowest level since the 2008 financial crisis. The price of copper, widely used in all sorts of industries, is now down to a six-year low. Most commodity prices are back to where they were before China engaged in its gigantic domestic investment program that drove up the cost of everything. As a minimum, this serious decline means that most industrial economies, and not just China, are slowing down.

Commodities down, world trade down 

And it gets worse. Because of sharply lower demand for their products, many emerging markets that produce and export commodities are either in a recession or close to it, (think of Brazil and South Africa). Besides, despite the official statistics pointing to lower but still significant growth, China is exporting and importing less of everything. This affects all its trading partners, from Australia to South Korea.

And there are more bad signs. Maersk, the Denmark based leading maritime shipping company, recently announced that it canceled several orders for new vessels. In other words, a giant player that manages a large chunk of world trade does not believe that current and projected global traffic volumes justify buying more container ships. (Incidentally, recent data about the movement of goods in and out of major US ports also indicate a sustained decline).

More Americans are working, but few good jobs

Back in the US, while more people have jobs, most of the recent additions are in leisure and hospitality, health care, and other services. Most of these jobs are low paying. In many cases they are not full-time. In other words, there are no new jobs in critical wealth creating sectors such as oil and gas, mining and manufacturing.

Sure, more American are employed, and this is good news. But their jobs depend on government spending (health care), and on the spending of other Americans employed in wealth producing sectors.

So, here is the thing. While we have more bartenders and waiters, we have had zero growth or declines in manufacturing, oil and gas, and mining. This is not a sign of a robust economy, going forward.

If the global economy slows down significantly, many US exporters will be hurt. Some, like Caterpillar, are already doing poorly. And this is because fewer foreign customers are engaged in new construction projects. Hence no need to buy more earth moving equipment from Caterpillar.

Other Central Banks not about to raise rates 

Last but least, you have to consider what the other monetary authorities are doing. The Bank of England just decided not to raise rates. The European Central Bank is engaged in Quantitative Easing and plans to have more of it, largely on account of disappointing growth within the Eurozone, (only 0.3% in the last quarter). The Japanese economy is (once again) sputtering.  Finally, China is trying to stimulate its economy by easing credit and lowering the amount of reserves banks need to keep. Therefore you can expect more, not less, monetary easing in the rest of the world.

So, here is the global picture. The US may be doing almost OK –for now. But the rest of the developed and developing world is slowing down. For this reason all other central banks will keep interest rates at zero or close to zero.

If the US acts on its own 

In this context, if the US will raise rates all by itself, as a minimum we can expect a massive flood of foreign capital seeking higher rewards into America. This would drive the US dollar further up, significantly hurting US exporters, including all major manufacturing companies. And remember that the newly added US jobs in leisure and hospitality largely depend on other gainfully employed people having the discretionary income to spend on restaurants and holidays.

Stampede out of stocks? 

And it gets worse. Everybody agrees that the US stock market is overvalued on account of zero interest rates that drove people away from other forms of investments. What we do not know is how overvalued.

Assuming even a modest Fed move on interest rates in December, we cannot expect rational, measured reactions. Foreign investors, fearing that the Fed might get aggressive, may flee from higher risk countries. The dollar shoots up. US exporters are hurt, badly. Their stocks sink, dragging down their vendors and suppliers. Other vulnerable stocks follow. Can this become a rout that drags down “everything”? Yes, this can happen.

Is the US economy rather weak, after all? 

Therefore, the odds are now against the Fed raising rates. But, wait a minute. If the Fed does not raise rates, then it signals to Wall Street that the US economy, contrary to its earlier analyses, is not that strong. If even a modest Fed move on interest rates might upset the whole thing, this means that the economy has no strong foundations.

For this reasons, some investors are likely to sell stocks anyway, finally realizing that they are holding stuff of dubious, most likely artificially inflated value.

Preserve your capital, stay out of over valued assets 

Either way, we lose. If investors were wise, they would give up the notion of making any money in stocks, given this weird environment characterized by a slow-moving US, a weak global economy, and expensive assets.

US stock are over valued. Therefore it is not smart to keep buying them. Of course, if you go into cash, you make no money, we know that. Still, better to make zero profit than losing your capital. As I said, if investors were wise…




After The Paris Terror Attack: Focus On The Caliphate

WASHINGTON – Regarding the large-scale terror attack that just took place in Paris, the worst thing that we can do is to talk about it too much. Full blast 24/7 media coverage, inspired by the need to know “all the details”, laced with testimonials of scared people and clueless law enforcement agents –these are the people who are supposed to protect the citizens– fuel a climate of confusion and panic. Along the same lines, it is positively unhelpful to call terrorism an act of war, as French President Francois Hollande did, simply because the very term “war” conjures up an idea of national mobilization and total conflict. 

What should be done? 

Alright, then what should we do about this menace? Of course, all Western countries should beef up all their intelligence capabilities.

Ideally, intelligence services should be able to identify and apprehend or kill all would-be terrorists before they act. But this is probably impossible. Impossible to monitor millions of potential suspects, scattered all over Europe, the Middle East, North Africa, and may be North America. Yes, you can have  success here and there. Some of the operatives may not be so clever. Some leave trails. Some are clumsy. These will be caught.

But a few will slip through. And, as the Paris tragedy shows, it is enough to have less than ten operatives to cause mass casualties and utter chaos.

Attack the Caliphate

There is however at least one thing the West should do –immediately. The Western countries and their Arab allies should destroy –and I really mean destroy– the self-proclaimed Caliphate in Syria and Iraq. This intention was declared a while ago by US President Barack Obama, (remember “degrade and destroy ISIL”?).  But nothing much has happened on the ground.

Sadly, a mighty coalition led by America produced almost no results, so far. This emboldens the ISIL radicals. They are challenged by a super power, and they are not retreating. In fact, they hold on to their conquests. In the eyes of the world, and especially in the eyes of young Muslims looking for a noble cause they could join, they are winning. And many want to join a winner.

Not the end of the story 

Let’s be clear: even assuming renewed vigor and success, eliminating the Caliphate is not the ultimate strategic objective in this long conflict. The West and several Arab nations are dealing with small organizations whose operatives can rapidly move to different countries and easily blend in.

It would hurt morale 

However, eliminating this political-religious entity would help. Right now, the very existence of the Caliphate is a symbol of victory. “The jihad has started, and we are winning, as our ability to rule over a vast territory demonstrates”. Well, eliminating this symbol of victory would hurt psychologically. It would inject doubts about the chances of eventual victory. It would diminish the ability to recruit more would-be jihadists.

A long conflict 

Again, the Caliphate now controlling vast portions of Syria and Iraq is not the ultimate objective in this conflict. Unfortunately, we are dealing with an irrational millenarian ideology embraced by people who can and will adapt to different circumstances.

The loss of this ISIL stronghold in Syria and Iraq, assuming that we get to that point, would be a major loss. But not necessarily the ultimate defeat. At least some militants will move elsewhere.

That said, it should be done. Every day that goes by and the ISIL black flags are there to show who is in charge, is a day of victory for the radicals and for their cause.




EU Money To Stop African Migrants?

WASHINGTON – The EU-Africa Summit just held in Malta was supposed to lead to some kind of understanding between African countries and Europe on how to stop or at least reduce the endless flow of illegal economic migrants from Africa. Thousands of people sail across the Mediterranean, every day, in search of a better future in Europe. Many of them drown while trying. 

Nothing done in Malta 

Needless to say, nothing was accomplished. And it is easy to see why. The African countries have neither the interest nor the capability to stop their (desperate?) citizens from migrating to Europe.

In fact they have an interest in having more of their own people in Europe. These migrants, once they get some work, send money back home. And this large remittances flow allows many of their poor relatives back home to survive. Indeed, this migration created the equivalent of economic welfare programs indirectly funded by European employers.

Therefore, forget about convincing African government about stemming the flow. They now have a vested interest in keeping this economic migration, (and the ensuing revenue stream), going.

That said, even if they really wanted to stop this migration, African leaders do not have the resources, the police forces, or anything akin to them, to stop people from going away.

European Trust Fund to stop migration? 

Hard to believe that the EU leaders do not know this. Be that as it may, the Malta meeting was held. And the highlight of the gathering is the EU offer to African leaders of a brand new European Trust Fund of about US $ 1.9 billion. This money will be used to implement poverty reduction measures.

This brilliant initiative is based on the idea that if the Africans were not so poor, they would stay home; and so they would not engage in perilous journeys to Europe with the goal of resettling there.

A couple of dollars per person will not do

Yes, of course, in principle this is true.

However, meaningful African economic development may take another 20 to 30 years. If anybody thinks that this Trust Fund will make any tangible difference, they should have their heads examined.

US $ 1.9 billion sounds like a lot. But Africa has 1.1 billion people, (2013 figures), many of them poor, or very poor. (Two billion divided by 1 billion means two dollars per person). This is a drop in the ocean. Besides, how will this Fund be administered? What kind of projects will be financed? What guarantees do EU leaders have that this money will be spent wisely?

All in all, this is a really stupid idea that will not affect the migration picture in any meaningful way.

The poor are mobile 

Here is the harsh reality. In this era of globalization, the poor in Africa “know”, or are led to believe, that there are greener pastures elsewhere. They see themselves trapped in a cycle of perpetual poverty in their own slowly developing countries. (Others are driven away by conflict and destruction in the Middle East or civil war in Libya).

However, now, for the first time in their history, millions of Africa’s poor believe they have a choice. They can emigrate. And so they are willing to take a huge chance and travel to Europe, in most instances paying large fees to traffickers who arrange their travel. This is true of all African economic migrants.

People from Syria, Afghanistan, or Eritrea are a different case. They escape from war, destruction, or tyranny. But, whatever their individual motivations, all these people want to go to Europe because it is within geographic reach, and because they believe that somehow, once there, they can have a fresh start in a more hospitable environment. Right or wrong, it does not matter. This is what they believe, and this belief motivates them.

Can Europe make room for more Africans? 

In principle, a 28 member strong European Union could make room for a few million immigrants. But this is not what most Europeans believe. The Europeans are hurting. Some EU economies do poorly, some of them barely have a pulse. The general perception is that countries with high levels of unemployment (12.5% in Italy, above 20% in Spain and Greece) simply cannot afford to welcome hundreds of thousands (overtime millions) of destitute, needy, and illiterate economic migrants.

It is obvious that these people first of all need housing, clothing, food, medical care, and schools. Where is the money to take care of them? On top of that, many if not most of them are Muslim. Which is to say that you have to add religious and cultural differences to the issues negatively affecting rapid integration into the new societies.

If you are an average European looking at all this, you conclude that allowing more immigration is not a positive development likely to benefit Europe. Therefore, you protest loudly. At the next elections you are more likely to vote for a party with a strong anti-immigrant platform.

They keep coming

Bottom line, here is the thing. This seemingly endless migration problem from Africa (and war-torn Middle East) to Europe has no solution. Indeed, short of placing machine guns on the beaches of Sicily, with clear orders to shoot to kill all migrants landing there –and this will never happen, for obvious reasons– there is no way to end this flow of the poor trying to escape poverty. The attraction represented by “rich” Europe is too strong.

The desperate migrants “know” that, once the get to Europe, they are “safe”. Somehow, they will be taken care of. And, after that, some economic prospect, some kind of work, will materialize.

Offering Africa a couple of billion dollars hoping that this would help reduce the volume of this migration crisis is an idea born out of insanity, despair or sheer stupidity. Take your pick.




All Is Well In China?

WASHINGTON – A detailed report prepared by a major Western international economic consultancy pointed out that the doomsday predictions about the Chinese economy about to fall apart are truly exaggerated.

All is well

The analysis maintains that China may be experiencing some problems now, but it is nothing out of the ordinary. The author points out that it is not true that the Chinese economy is dragged down by a bloated public sector. On the contrary, private enterprise is dominant and the long term trend indicates that it will continue to get bigger. (No mention that the state controls all the key strategic sectors, like energy and banking).

Plenty of innovation 

It is also untrue that the Chinese cannot innovate. There are plenty of examples of successful innovators. So much so that many western companies want to partner with them.

And it is also not true that rapid industrialization destroyed the environment. China went through phases quite similar to those experienced by other fast growing economies. Yes, there has been some environmental damage. But it is not catastrophic.

Besides, the government is acting fast, and remedial action is underway. (No mention about the lack of publicly available, reliable data on pollution. No mention that until a few years ago the government released false data on air pollution with the clear objective of hiding the extent of toxic emission in large urban areas).

Debt is manageable

It is also untrue that the massive amount of debt created to counter the effects of the 2008 global financial crisis has undermined the foundations of the Chinese economy. Yes, the author concedes, there is a lot of bad debt. However, China has massive cash reserves. The government can intervene and fix all the financial problems.

There are some issues, but no crisis 

Anyway, you get the picture. Yes, there are issues. But, hey, every country has got issues. And China’s shortcomings are pretty much the same as those experienced by Taiwan or South Korea at comparable times during their successful economic development.

Alright. So, here we have an optimist. Yes, China’s economy is slowing down. But, in truth, the glass is half full, and not half empty.

Fair enough. When dealing with such a large country it is not easy to get it absolutely right. May be the author is closer to the truth than other, more pessimistic observers.

No mention about the political and institutional context 

However, reading this rather upbeat China analysis you are bound to notice something really important. At no point is there is any mention of China as a non democratic one party state in which any political dissent is actively repressed.

No mention about routine media and internet censorship. No mention about a judiciary system that operates according to political instructions. No mention about a massive anti-corruption campaign orchestrated in secrecy, according to secret rules, by the Chinese Communist Party leadership. No mention that this fight against corruption, in a country where corruption is endemic, can be used as a tool to destroy political enemies.

In other words, there is not even the slightest mention about the fact that lack of political freedom, political pluralism and individual freedoms may have an impact on current and future economic performance. This is not just a small detail.

This connection between political freedom, economic freedom and eventually good economic performance is at the core of what we believe to be the underpinnings of modern, self-renewing societies. Free societies allow the free expression of human talent. And this talent is at the source of innovation, and ultimately prosperity.

Democracy and Capitalism 

Indeed, we say in the West that political freedom is the oxygen that allows private enterprise to exist, flourish and unleash a virtuous cycle of growth. It is not an accident that we call our system “Democratic Capitalism”.

We passionately argue that innovation is predicated upon the freedom to search, to pursue unorthodox paths, to go out of the box, to seek new partners, and so on. Hard to do this consistently in a top-down society in which few dare to go against the rules, written or unwritten as they may be.

Illiberal China will thrive 

It would appear that this China expert does not think that political freedoms have any connection whatsoever with the quality and long term sustainability of economic performance. In other words, a one party state can deliver prosperity just as much as a democracy in which basic individual and economic freedoms are constitutionally protected.

Although this point is not openly made in his analysis, implicitly we are to understand that China, a one party state, is doing quite well and –going forward– there are no major issues or minefields its self-appointed leaders will have to deal with. This means that you can have censorship and innovation. Political prisoners and social media. Non transparent judicial proceedings and intellectual property protection. No problem.

It never happened

In the final analysis, we are told that the Chinese economy, while not booming anymore, is basically fine; and all looks good. Which is to say that one party rule can create the necessary conditions for sustained prosperity.

Again, the author does not openly say this. But by implication this is precisely what we get. The numbers (according to him) look good, and so the system must be good. I find this scary.

The fact is that in the modern era we do not have other examples of one party states that produce self-sustaining innovative economies.

But this simple fact does not seem to bother the author. Again, I find this scary.

 

 




Solar Energy Coming to Africa

WASHINGTON – A few months ago, a photograph of a little Asian child sitting next to a city lamp post, trying to do his homework there because of no electricity at home, went around the world. Think of the hardships of poverty. And think of the resilience of this little child, trying to overcome adversity with a little bit of ingenuity.

Think darkness 

Yes, lack of electricity in the home is a huge, in fact horrible problem. But there is worse. Much worse. Think of no electricity in the home –and no lamp posts. Think about complete darkness at night because your village or township is not connected to any grid. And you are not alone. Millions of others are in the same conditions.

Most of Africa has no electricity 

And where does all this happen? Well, in many places in Asia. But the worst of the worst is in Africa. While statistics vary from country to country, on average, well over 50% of all Africans have no electricity whatsoever. Not in the home. Not in the streets. We are talking nothing. Zero. In sub-Saharan Africa, if you leave out a few cities where there is electricity (even if unreliable), about 70% of rural people have nothing.

No take-off 

Until the collapse of commodity prices, the buzz was that Africa was finally emerging. Growth rates of about 7% on average in sub-Saharan Africa seemed to indicate an economic take-off.

Well, not so. Not even close. Growth was driven by the China-induced high demand for commodities. This new demand drove prices up. And this meant more money coming into Africa, (and beyond: think Brazil, Chile, Argentina, Indonesia, Canada and Australia). Unfortunately, though, the new money was not invested wisely to modernize countries. In many instances it was used to buy expensive imports.

Well, now the party is over. The Chinese boom ended, and commodity prices have collapsed. African currencies have lost altitude. In some cases they lost 30% or even 50% against the US dollar. And all the economic diversification strategies discussed, and in some cases approved at the highest level, have yet to be implemented.

Nothing without power 

Alright. Things do not look great in Africa. But what about electricity, or lack thereof? It is obvious that not much can be done to grow these economies, unless affordable and reliable electricity can be produced and distributed on a much larger scale. It is just impossible to think of any economic development model worth its name without electricity.

Is solar coming? 

And here there is the proverbial ray of hope. After many false starts, it seems that solar power may contribute to solve this systemic power deficiency problem in a significant way.

Many countries in sub-Saharan Africa have plenty of sunshine almost all year round. Therefore they are ideal for solar power installations.

Until yesterday, however, the critical obstacle was price. It was just too expensive to build and maintain solar power plants in Africa. There could be no way to make money.

Better and cheaper 

But now it is different. Solar technologies have become more sophisticated, more resilient, and much cheaper. Therefore, it is beginning to make sense to install solar in Africa.

The additional advantage represented by solar is that solar solutions now can be customized. You do not need a large investment in a huge plant. You can bring the panels directly to the village, to the individual dwelling. Likewise, no need for sometimes prohibitively expensive transmission lines.

New companies 

For example, Off-Grid Electric (www.offgrid-electric.com) is a US company that drew from the experience of the growing solar panels business in the US to create a model that could work in Africa. Right now it is operating in Tanzania and Rwanda, in East Africa. Off-Grid Electric offers affordable products and simplified payment systems that allow even the poor to access its technology. And, as the company’s name says, it is all “off-grid”. No need to wait for transmission lines to get power.

Can the poor pay? Yes, even the poor spend money on fuels. They use charcoal to cook, kerosene and other fuels to power very inefficient (and dangerous) lamps. These traditional tools are rudimentary and expensive. It turns out that solar is better and cheaper. A payment system customized to the ability to pay allows this business to grow.

Revolution 

Needless to say, the difference between having zero electricity and having it all the time, is truly revolutionary. You can have light at night. You can read, do homework. You can recharge mobile phones, you can have power for tools and appliances, and more. 

Of course, these type of scaled-down, village level applications are not designed for large industrial use. Those would require bigger plants. But, if indeed solar is becoming cheaper, it will be possible to finance larger plants that are cost-competitive vis-a-vis conventional fossil fuels. 

A new era 

Have we entered a new era? I dare say, yes we have.

Africa’s electricity shortage was mostly about high cost, and very poor end users who could not afford expensive service. Now we are able to bring affordable power directly to them, without huge up front investment in new plants, and equally large distribution costs, due to the need to create new transmission lines.

Yes, with electricity life in the village is going to be completely different.




The Republicans Should Coalesce Around A Modern Pragmatist

WASHINGTON – I guess I am also part of faulty conventional wisdom when it comes to US presidential politics. I believed that former Florida Governor Jeb Bush had a great chance to become the Republican nominee. I was wrong. 

Jeb Bush? 

I thought that Jeb Bush brought to the table an impressive record as a two term Governor. He also has good credentials when it comes to relaunching the GOP as an inclusive political force focused on expanded opportunity for the poor, minorities and Hispanics. He is a serious proponent of public education reform.

Well, all this is true. Still, I was wrong because I underestimated the strength of the anti-establishment sentiment this year. Bush may be great. But probable Republican primary voters are just not interested. They are not buying.

Personality issues 

On top of that, Bush proved to be a mediocre, in fact bad stump politician. You would think that someone with that kind of experience would be at ease campaigning and debating. But he is not. He looks awkward, out of place. His demeanor is bland. Well, this may be fixable. But fixing it is predicated on Bush’s ability to quickly reinvent himself and present to the voters a different persona. Doable in theory, but very difficult, this late in the game.

A bad name

Well, if demeanor on the campaign trail is a big issue, Bush’s family name may be a truly insurmountable obstacle. Simply stated, it is now clear that the Republicans are fed up with the old political establishment. And Jeb Bush, even though he never held any position in Washington, is part of a political dynasty that is not remembered fondly.

His brother George W. Bush (President until January 2009) is linked to the disastrous Iraq War and to the onset of the devastating 2008 “Great Recession” with the ensuing financial crisis. Not a great legacy.

Out of the game 

As things stand now, even though Jeb Bush was a good Governor and not part of his brother’s administration, the family name and the blood connection may be enough to kill his candidacy. Hence Jeb’s extremely low numbers in all the polls.

As I said before, beyond his name, Bush revealed other personality problems that may sink him anyway. Given all this, he is probably finished as a candidate.

Coalesce around a credible moderate 

Well, if this is indeed so, then it would make sense for him and his supporters to coalesce around another pragmatic reformer who can appeal beyond the traditional GOP base in the general election. My preference would be for John Kasich.

But I realize that Kasich is also viewed as another establishment candidate. He has been around too much. Never mind that he has been an extremely capable Congressman, (former Chairman of the Budget Committee), and an excellent Governor of Ohio. None of this matters this year. For pretty much the same reasons, you can take New Jersey Governor Chris Christie out.

Is Rubio the man? 

Well, who’s left? Florida Senator Marco Rubio. He is young, and different. The son of humble Cuban immigrants who had to struggle to get ahead, Rubio is a credible proponent of a new Republican Party that will create opportunities for a changed America. He is young, good-looking, reasonably articulate and, unlike Bush, he looks enthusiastic.

Well, is Rubio the man? I do not know, but the moderates better make up their minds –and fast.

Trump leading by default 

If the reasonable, future oriented, inclusive Republican moderates fail to unite around one of them, then we are left with the absurd candidates. Donald Trump is still doing reasonably well. But he is struggling to get above 25%.

Still, with all the moderates below 10%, assuming that Trump somehow manages to get the Republican nomination, there is no way that he will be able to win against Clinton. Not from such a narrow, if loyal, base of angry “anti-everything” voters.

Carson not credible 

The same applies to Dr. Ben Carson. He is an interesting man with a compelling personal story. A classic “rags-to-riches” story that proves how at least in some cases sheer determination and creativity can lift people out of poverty.

But Carson is an even more improbable nominee. He has almost no public policy experience. He is a neuro surgeon. What does he know about entitlements, national security, and energy? What does he understand about the Federal Budget, or Social Security? Practically nothing. He never held any public office.

Pick a candidate who is different but electable 

I do understand, up to a point, that Republican voters are looking for someone “different”. I get that. But there should be a distinction between different and being laughable –and therefore unelectable. Trump and Carson, for very different reasons, are both laughable and unelectable.

Can the smart moderates coalesce around a candidate who can appeal to the conservative base but also to the uncommitted in the middle who always decide all presidential elections, with a political program founded on expanded opportunity and inclusiveness?

I believe they can. But they should hurry. Battling each other (witness the Bush Rubio fight) while Trump continues to claim, with cause, that he is the GOP front-runner is bad for them, bad for the party, and certainly bad for America.

 




Obama Will Not Fight ISIL

WASHINGTON – The Obama administration Middle East policy can be summarized with this proposition: “Let’s do nothing, hoping nothing really bad happens during our watch”. 

Timid on Iran

And this includes the way in which the negotiations with Iran were conducted about nuclear issues. The effort was not about enforcing non-proliferation. It was mostly about trying to regulate proliferation, buying a little time now, hoping that the Iranian regime will mellow later on and decide not to openly pursue nuclear weapons 10 years from now.

The ISIL threat

Well, nuclear Iran aside, the fact is that some really bad things have already happened. Among these by far the worst is the rise of ISIL. It is almost incomprehensible how the Obama administration, from day one has consistently under estimated the horrendous implications of the emergence of this self-described Caliphate.

The fact is that now the Sunni minority in Iraq, along with a huge piece of Syria, are dominated by this radical movement. This is and will continue to be major trouble in an already troubled region.

ISIL inspires others

The very existence of ISIL as a functioning “state” dominated by radicals fuels and inspires more radicalism in the region. ISIL inspired movements are sprouting everywhere, from Libya to the Sinai peninsula in Egypt. It is impossible to predict what these organizations will be able to do, but we should expect the worst.

More terror

Just consider the destruction of the Russian civilian airliner carrying tourists. If this accident was indeed caused by a bomb placed on board by ISIL members, (this is the theory now), we can see the far-reaching consequences of a few well crafted acts of terror carried out by ISIL members or sympathizers. In just one day Egyptian tourism has been essentially killed. No more tourists. One bomb, one downed airplane. Enormous economic damage.

Of course, with or without ISIL there will be other radical groups in the region, and some of them will engage in acts of terror. Still, the fact that militants know that there is an actual functioning state that embodies their beliefs is a tremendous morale booster. It reassures the true believers. It tells them that they are winning.

An ISIL defeat would demoralize militants 

Imagine instead TV footage that shows ISIL fighters retreating and demoralized, many killed or taken prisoners, territory lost, their black flags gone. At the very least this would deflate the hopes of more would-be jihadists.

Incomprehensible indecision 

Given all this, Obama’s indecision in fighting this enduring menace (after having stated that his aim is to degrade and destroy ISIL) is almost incomprehensible. By allowing this cancer to attach itself to large parts of the region, Obama is disregarding the likely consequences. More radicalism, more violence and more terrorism.

Not the only issue

I fully realize that ISIL is not the only issue to be dealt with. But it is the most virulent and therefore the most urgent. Conferences and high level meetings will not take care of it. America is the only country that has the military power to confront and destroy this menace.

Any day that goes by and ISIL is still there, flying its flags, is a day of victory for all the militants.




Keystone Pipeline Is Dead – The Triumph Of Politics

WASHINGTON – Now it is official. President Obama announced that he is against the proposed Keystone pipeline that would have allowed Canada to ship oil directly from the Province of Alberta to the Texas refineries. The project has been officially killed.

A symbol 

It is no secret that this pipeline had become a target for all the US environmentalists who believe that fossil fuels are bad, if not evil. The argument against this particular project is that it would have delivered an even more potent poison. You see, Canadian oil is extracted from oil sands. The process is messy, and dirty. And it generates more emissions.

Therefore, preventing this pipeline from being built became a crusade.

And now Obama has finally taken a position. It is no wonder that in the end he had to agree with the various environmentalist groups. They are mostly Democrats. Hard to think that he would done anything that would alienate them.

Theological argument 

And what about his argument? Well, his argument is based neither on economics nor on any practical energy policy. In fact, it is akin to a theological argument. America is leading the world in the battle against emissions and climate change, Obama said. By approving a project that increases reliance on a particularly dirty form of fossil energy, America would have tarnished its own credentials.

It would have set a bad example, right before the United Nations Conference on Climate Change to be held in Paris on November 30. This will be a major international event in which all countries are supposed to prove how serious they are on combating climate change. Approving a fossil fuels project right before a global forum in which America will encourage others to commit to reducing oil related emissions would have looked bad.

Therefore, this is not about getting more Canadian oil. This is all about politics, ideology and symbolism.

Negligible impact 

Let’s make it clear. Whether you are for or against the pipeline, at the end of the day, when it comes to global warming this is a non issue. The fact is that having or not having this pipeline does not move the needle in any special way.

Enhanced energy security 

However, it would have been better to approve it for different reasons. The pipeline would have contributed to enhanced US energy security. Indeed, the Keystone pipeline should have been allowed because getting more oil from Canada (as opposed to importing it from OPEC countries in the Persian Gulf) would have added to American energy security. Getting about 800,000 barrel a day from Canada would not have been a revolutionary change. But it would have been a positive incremental step.

And here is why. Notwithstanding the huge increase in US domestic production that took place in the last 5 or 6 years, the US still imports almost 50% of all the oil it consumes. That’s about 9 million barrels a day. This being the case, it would be wise to get more of the oil we absolutely need (until something else will replace it) from Canada, a friendly neighbor, as opposed to importing it from the perennially turbulent Middle East. It is as simple as that.

The Middle East is a mess that we cannot control. Something really bad may happen there; and a major crisis may affect oil flows from the region. Therefore, if we had a choice –and now we do–  let’s further reduce our reliance on oil imported from the Gulf region and let’s get more oil from Canada, a friend and an ally.

Is this really so difficult to understand?

No impact on the environment 

As for the alleged negative environmental impact, the Obama State Department, technically in charge of all reviews regarding the proposed pipeline, stated that building Keystone would not alter US total emissions in any appreciable way.

Therefore, all considered Obama should have allowed this project to move forward. He did not do this for political reasons. Nothing to do with the merit of the case.

Does it make economic sense? 

Now, from a different perspective, one could argue about the wisdom of constructing this new Canada to USA pipeline right at a time in which there is a global oil glut, and oil prices are half what they used to be when people started planning for the Keystone pipeline.

May be it no longer makes economic sense to build it. Fair enough. But this is a business decisions to be made by TransCanada and its partners. It is not up to the President of the United States to decide if a project makes economic sense or not. This project would have been built by a private company, and not by the US Government.

Oil transported by rail 

And one more thing. The green movement applauded Obama’s decision as a good way to preserve the environment, while sending a strong message to the fossil fuels lobby: Watch out. We are going to get you”.

But here is the irony. Without the pipeline, substantial amounts of Canadian oil are and will be imported into the United States. This Canadian oil is loaded on trucks or freight trains.

Now, any energy logistics expert would tell you that these modes of transportation are much more dangerous than a modern, state of the art pipeline. As several train wrecks with explosions and fires caused by the oil loaded on rail cars have demonstrated, transporting oil by train can be a real hazard.

The issue was the pipeline 

But I guess that trains loaded with oil, occasionally derailing and exploding here and there, are not an issue for the environmentalists.

The issue was the pipeline. And now it has been killed. Victory.




Italy Still In Crisis, But Some Media Are In Denial

WASHINGTON – Sometimes I wonder where is the boundary between self-deception and willful manipulation. Are some media in free countries deluding themselves or are they really trying to deceive you when painting a rosy pictures of what is in reality a dreadful situation?

Italy’s public debt 

For instance, take the perennial tragedy of the Italian gigantic national debt coupled with a sorry-looking economy that, after almost 10 years in recession, is still below pre-crisis level; this way making it virtually impossible for Italy to exit the negative spiral of high debt and almost zero growth.

Italy’s public debt is not even close to Japan’s world record (240% of GDP); but, at above 130% of GDP, it is among the worst cases. Coupled with a non performing economy, this massive debt is just like an enormous millstone around Italy’s neck.

Right now, thanks to European Central Bank (ECB) policies that reduced interest rates to almost nothing, this gargantuan fiscal hole is still manageable. But debt service on such a large-scale is a huge liability for a country whose economy has been doing very poorly for almost a decade. (After years in the red, Italy’s projected economic growth for 2015 is 0.9%).

It keeps growing

Worse yet, this debt, albeit slowly, keeps growing. 2015 will be the worst year ever, with debt touching almost 133% of GDP. At some point, interest rates will go up again. When that happens the Italian economy, unless a miracle occurs, may be unable to generate the additional revenue to manage this level of debt, let alone begin retiring it.

Change of direction? 

Alright, you get the picture: a dreadful situation. That said, I was really intrigued when I saw this headline in La Repubblica a major Italian daily: “Stability, Padoan: Debt Takes Opposite Course, It Goes Down, After 8 Years”.

Well, the meaning of the headline is clear, and unmistakable. It says that according to Pier Carlo Padoan, Minister of the Economy and Finance in the Renzi government, there has been an inversion. Public debt is now actually going down. Think of that.

What happened? 

Now, this is news. What happened? Some dramatic spending reform that actually cut outlays? Something like dramatic public pensions reform? Or health care reform that cut cost in a serious way?

Well, none of this. In fact, the headline is false.

If you bother to read it, the article clearly states that Italy’s public debt will actually go up –and not down– in 2015. It will grow to 132.85% of GDP –a historic record. However, according to a government forecast delivered by Minister Padoan, “the news” is that debt is projected to go down to 131.4% of GDP in 2016, and hopefully down to 127% in 2017.

Fake news

So, here is the thing. Debt is still incredibly high. And it will go even higher this year. But the government projects that its wise policies will bring about…what? Well, a really modest reduction next year, and a slightly bigger one the following year. Of course this is only a forecast that may turn out to be wrong, as most forecast usually are.

Just a hope, smuggled as news 

So, there you go. The dramatic change of direction declared as fact in the headline does not exist. It is at a best a hope for a future decline –and a very modest decline at that– of what is and will remain a gigantic public debt.

Again, even assuming that this inversion would really take place next year and the year after, it is so small that it would change essentially nothing. Public debt decreasing –may be– from 133% to 127% of GDP, in a few years? And this is news?

Delusion and deception 

I repeat the opening question: is this optimistic headline another sad case of self-deception, or is it a conscious attempt to present to the readers a rosy picture, even without any real facts supporting it?

Given what I know about Italy, it is likely to be both. Sadly, even intelligent, educated people have lost contact with reality. They dream. Audiences will believe anything and politicians will say anything that they believe will work as a tranquilizer. “Things are getting better”. “We see the light at the end of the tunnel”.

In the swamp

The reality is that Italy is still in the middle of the swamp, and there is no real policy remedy agreed upon, let alone seriously implemented, that will tackle the over spending caused by its bloated welfare state, foster innovation, investments, productivity, and ultimately jobs creation. Without these changes actually taking place, you can count on continuing high unemployment, (currently 12.4%), an anemic economy, high taxes, and a perennially over sized public debt.