Before we get to JQ’s main article today, I just wanted to address an interesting comment we received this week from a reader referring to our views as leftist! So I looked up a concise definition and came up with:
“One who holds a left-wing viewpoint; someone who seeks radical social and economic change in the direction of greater equality. ”

I can see how the valued reader may have come to this conclusion, after all we are all too often having digs at ‘the establishment’. But, just to clarify for the benefit of all, we are not at all anti-establishment. Neither are we particularly socialist.

Au contraire mes amis we believe that ‘free market’ capitalism, though not perfect, is the best system we currently have. We believe that human enterprise should be rewarded in direct proportion to the inspiration and perspiration applied. Most of the time it works pretty well, sometimes perhaps too well (ask the Chinese!) Hence on occasion some powers feel compelled to manipulate it (ask the Americans), for example with trade barriers, subsidies, bailouts, credit pumping and so on. Fortunately though, in its truest form, the free market is a force of nature. It is the combined sum of all human economic endeavour.

In the short term markets can be somewhat manipulated by those with vested interests, be it market makers including the banks, cartels such as OPEC, government policy makers or hedge funds. Their activities influence the herd-mentality bubble-brigade (that includes many of us) who as a group are the end ‘voters’ who bid up assets such as stocks and houses.

As they say in stock market parlance, “In the short term the market is a voting machine, but in the long term it is a weighing machine“. Speculation might work short term, but only sustained hard work or skill pays off long term. In the end the market is far too complex to remain under any one group or nation’s control. It always reverts to its optimum state, and the force of the snap-back tends to be directly proportional to the degree of manipulation (or dumbness) which preceded it.

So, fellow comrades…err….citizens….we are not fuzzy thinking leftists after all. We don’t want to change the world – heck we wouldn’t even know what to change it to. We just want to see through the haze and perhaps get a few faint glimpses of the reality that is so often hidden from us. We want to expose the world of economics ‘as it is’ with a view to steering a course through the murkiness without getting our fingers burned; without ending up penniless towards the end of our miserable existences. Furthermore, being the nice people that we are, we want to share it all with you, our readers. Ultranomics commentary is meant to inform and entertain and to make you think. There are no political agendas or aims to be found on these pages. Honest, guv……

The award for the most depressing story of the week goes to……..

First the Somali pirates, now the Mumbai terrorists. At least the former were in it just for the money. The latter have proven more blood-thirsty. In the last Ultraletter we spoke about the 23rd century utopia of Star Trek. How far we truly are from that ideal.

With just under 200 dead we have no clear idea who they are and why they’ve done it. One thing we do know, they were highly organised and well equipped. They had insiders at the hotels who smuggled in the explosives. They had boats to drop them off, off the coast of Mumbai. They specifically targeted India’s financial hub and went after Westerners in particular. They planned it so well yet left an easy peasy trail of breadcrumbs back to…..you’ve guessed it…Pakistan. Doh!

I am no conspiracy theorist by nature – I even believe that the Americans really did go to the moon, much to the disdain of JQ ! – but you have to ask yourself who would have most to gain from this crime at a time when India and Pakistan are building bridges and getting pally once more? What’s worse is that the average man in the rickshaw falls for it. As surely as A is followed by B the terrorists cause some carnage and hey presto, the steadying relations of the two neighbours are blown to smithereens together with the perpetrators themselves. At who’s behest though, that is the question.

Perhaps Kashmiri activists making a point over territory? Perhaps Pakistan-based Islamic militants making trouble for the Pak govt over their support for America? Perhaps insiders who can’t abide any Friendship with the old enemy? Perhaps it could even be some other nation (or nations) that fear the possibility of an IndoPakChinese Superpower in the sense of military (nuclear) capability or economic strength? Who’s playing the long game here…..?

…..jq takes it further……..keep reading folks

WAR is RAW

12th November 2008, JQ (co-editor)

Every crime has a motive. To actually pick up a gun or knife or whatever and then take a human being’s life usually needs a planned state of mind which caters for that motive.

I used to read stories of the Indian and Pakistani police when the British were ruling and just after the partition. In those days they knew the art of investigation. Back then they used people called “khojis” [the C.S.I. of back then] who could find the clues and track the foot steps of the criminals helping the law enforcers to the motive of that crime! Coming back to these Bombay….oops Mumbai….attacks sit down and relax and then think why don’t the police or investigators with all the modern tools of the trade not actually investigate and plainly start naming names of their arch enemies [or ex arch enemies]? Could it be procrastination or maybe some ulterior motives – but tell me one thing if you can, who has most to gain from an on going Pakistan India scuffle? Now narrow it down to one nation. I don’t have to write the name you know it already.

Imagine India & Pakistan at peace with no lingering Kashmir or river water issues then we can move on to become an economic hub of power, with China we can take on the world, but somehow this probably won’t happen – the “un-named” nation won’t let it happen.

It is all to do with the Art of War which incidentally is one of the oldest books on military strategy in the world. It has had a huge influence on Eastern as well as Western military thinking, business tactics and beyond. Its writer Sun Tzu was the first to recognize in 6th century BC the importance of positioning in strategy, and that your position is affected both by objective conditions in the physical environment and the subjective opinions of the competitive actors [there may well be an Oscar category for politicians] in that environment.

He taught that strategy was not about ‘Planning’ in the sense of working through a to-do list, but rather that it requires quick and appropriate responses to changing conditions [for example in recession create a war to get the economy moving or in case of the subprime crisis create an arch enemy or better still create an alien attack].

‘Planning’ works in a controlled environment but in a competitive environment competing plans collide [race to the moon, missiles and anti-missiles defences etc] creating unexpected situations [9/11, attacks on Pakistan, attacks on India]. So WAR is indeed RAW [incidentally RAW is also the acronym for the Indian spy agency Research And Analysis Wing!]

New World Order

Somehow this reminds me of the term New World Order which refers to a conspiracy theory in which a powerful and secretive group is plotting to eventually rule the world via an autonomous world government. This powerful group would apparently replace sovereign states and other checks and balances in world power struggles.

H.G. Wells advised in his 1940 work “The New World Order” that “when the struggle seems to be drifting definitely towards a world social democracy there may still be very great delays and disappointments before it becomes an efficient and beneficent world system. Countless people will hate the new world order and will die protesting against it”.

You may ask it can’t be. How come sovereign governments are following old bygone theories of H.G. Wells or Big Brother like controlling tactics thought of by George Orwell in 1944 but look around you. Isn’t this world full of seeds of doubt sprinkled everywhere, surveillance cameras to protect us! [normally they are not where protection is really required] speed cameras to protect lives [see my article on speed cameras] biometric passports to protect our identities [we need more protection from bureaucrats losing our identities in the first place] identity cards to protect our freedom from invaders [to be trialled on poor foreign students who have no say hence are targeted to up the statistics in the labours' favour] pay as you drive road charging system that keeps track of your movement! And best of the lot is an airport scanner that can read your mind [for George Orwell's thought police in action see Tom Cruise's action flick Minority Report]

Read the full story here of the real thought police in today’s world

Need I say more to prove that we are slowly moving towards a totalitarian police state at least in the Western world [I am humming hold me kiss me thrill me kill me as I type].

One of the more enduring myths in Western society is that wars are somehow good for the economy. Many people see a great deal of evidence to support this myth, after all World War II came directly after the Great Depression.

I believe it is a faulty belief which stems from short sighted and shallow economics thinking. Let me explain. The flawed logic of this myth is an example of something economists call “The Broken Window Fallacy” which is brilliantly illustrated in Henry Hazlitt’s 1946 book “Economics in One Lesson.”

In it Hazlitt gives the example of a vandal throwing a brick through a shopkeeper’s window. The shopkeeper will have to purchase a new window from a glass shop for a sum of money say £250. A crowd of people who see the broken window decide that the broken window may have positive benefits after all. If windows were never broken what would happen to the glass business? Then of course the train of thought is endless. The glass merchant will have £250 more to spend with other merchants and these in turn will have £250 to spend with still other merchants and so on. The smashed window will go on providing money and employment in an ongoing stream.

The logical conclusion from all this would be that the little hoodlum who threw the brick, far from being a public menace was in fact a public benefactor [Britain has quite a few of these benefactors in ASBO rich areas although they have yet to stir up some economic activity - perhaps not enough bricks - Gordon Brown may consider distributing free bricks at Tesco].

The crowd is correct in realizing that the local glass shop will benefit from this act of vandalism. What they have not considered however is that the shopkeeper would have spent those £250 on something else if he did not have to replace the window. He might have been saving that money for a new set of golf clubs, but since he has now spent the money he cannot do so and the golf shop has lost a sale.

He might have used the money to purchase new equipment for his business or to take a vacation or maybe to purchase new clothing. Instead of having a window and £250 the poor shopkeeper now merely has a window which was there anyway. Or as he was planning to buy a suit that very afternoon instead of having both a window and a suit he must now be content with the window or the suit. If we think of him as a part of a given community then that community has actually lost a new suit that might otherwise have come into being and is just that much poorer. So the glass store’s gain is another store’s loss hence there has not been a net gain in economic activity. In fact there has been a decline in the economy of that community!

No wonder I see the sun of tomorrow shining in the east and it is shining its brightest over China because the only bricks they carry are for building new projects. They don’t seem to plan on breaking neighbourhood windows or even the windows of the next town and they are certainly not trying to “SORT” the world.

jq@ultranomics.com

more ultranomics below…..

Back with TK in UK……………

Companies…….

The classic Atari videogame: Breakout

Do you remember that old Atari videogame called Breakout, where the ball would bounce around the screen smashing any brick that it touched? That reminds me of the toxic debt originating in the US subprime debacle, the effects of which are still ping-ponging around the globe smashing companies and financial institutions in their wake.

After knocking out Iceland (the country, not the UK frozen food retailer which probably is worth more) and giving the worlds largest bank, Citigroup a hefty thwack, the latest UK bricks to be smashed last week were two household names in retail – I am referring of course to Woolworths and MFI. Who would have thought that good old ‘Woolies’, founded in 1909, having survived the Great Depression, two world wars and several recessions would meet its demise in the crash of ‘08? We are wondering where that wrecking ball is on its way to next? The world it seems is smaller than we ever thought and remarkably its all interlinked through the subprime debt network. John Lewis, Marks & Spencer – batten down your hatches. Ford, General Motors, Chrysler – run for cover now!

Houses…….

Well you would hardly be surprised to know that UK house prices fell again in November, albeit by only 0.4%, a much more moderate slowdown compared to the 1.3% fall of October. This is according to the statistics from Nationwide, UK’s largest building society.

Prices are down from a year ago by an average of 13.9%. Mind you you’re still doing OK as long as you bought more than a couple of years ago. Average prices are still £25,000 higher than they were in 2003. Those who bought more recently will need to ride out the storm – but if you do need to sell try to avoid those ‘buy and rent back’ profiteers. There may be some genuine companies out there but there’s plenty of sharks roaming the waters right now.

As for where we are headed in 2009 with house prices, its anybody’s guess – including ours. We do dabble in property so we have a gut feeling you see. Mine says that falling interest rates are going to tempt professional landlords into the market in a sustained way from here on in, although that won’t be enough to revive the market. Thus there will be no recovery in 2009 although a bottom may well be reached during the middle of the year.

How we go from there will depend on other factors such as bank lending improving, recession abating, unemployment steadying etc. The other main factor will be human psyche. We will as a nation need time to forget the panic of 2008 and the fear instilled by the subprime meltdown. Once we forget we will then start dippping our toe back in. At the moment though fear and worry are still the order of the day. That’s all my gut has to say on the matter for now, apart from some gurgling.

Jobs……..
The chancellor Alistair Darling was on BBC Radio 4 last Tuesday (25th Nov) insisting that Labour had reduced unemployment so significantly since coming into power and that most of the jobs created by Labour had been in private sector. I mean “Wow” – the art of propaganda and misdirection is obviously very much alive and kicking.

It is true that between 1998 and 2006 there seems to have been around 2.2 million new jobs added. Unfortunately 1.3 million of these have been public sector, inc admin, health, teaching, social work. As for new jobs for women, a whacking 90% all job growth for women was in the public sector, i.e. funded by the taxpayer! The West midlands actually saw a drop in private sector jobs of 2% while public jobs increased 25%!!

Why is this important – after all isn’t a job still a job, regardless of public or private sector? Well true at an individual level its great for those getting the job. Yet by creating all these government jobs they do not directly benefit the nation’s economy. Instead we all as taxpayers have to pay these public wages.

Of course we don’t mind the teachers, doctors, nurses – give us more. But its the pointless pen-pushing jobs in City halls up and down the country that we object to, each with attractive salaries, bonuses, generous final salary and index linked pensions. These public workers spend more days on strike and are 25% more likely to take sickies than those working for private companies. There are 818 workers in town halls earning more than £100k, paid for by me and you. Yet as a nation if we want to prosper we need industry, and people employed in industry. Thats the only way to turn a profit – by making products and offering services and exporting them to other countries. Paying each other to potter about organising this and that does not create wealth.

And…guess what? Its going to get worse! The Centre for Economic and Business Research (CEBR) reckons the state will be hiring another 50,000 workers while at the same time private jobs will continue to slide as the economy falters. The old soviet communists would be proud. What a warm feeling, being in the embrace of the all-knowing nanny state. Yes Gordon, take our taxes and spend them as you see fit. You are wiser and cleverer. Give us our daily bread, and our jobs. Since you employ us, we will of course return the favour and vote for you. After all, those nasty Tories might take away our cushy jobs. Lets not call it buying votes though – lets just call it mutual back scratching!

For another take on the Mumbai Terror attack check out pkpolitics.com here.

Welcome dearest readers to Ultranomics

This will be the first edition – hopefully the first of many – of your newest and shrewdest viewsletter covering the economic situation both here in the U.K. as well as back in the Homeland of Pakistan.

Why Pakistan of all the places in the world and what the heck does Ultranomics mean you might enquire?

The answer to the first question is that we, your two co-editors that is, happen to be Brit-Paks (or EuroPaks if you’re pro-European Union and into milk cartons) and thought that it was about time we stopped our idle armchair commentating and actually put our points of view out there.

As for the name Ultranomics – well we made it up, so it never existed before – a bit like this website. But you could say its a concatenation of ‘Ultra’ and ‘Economics’ and in that there may be something to ponder for minds that like to ponder on such things. We don’t mind admitting to being somewhat impressed by the renowned American economist Steven Levitt who wrote the ground-breaking book Freakonomics. Its possible that subconsciously we picked up some inspiration from his work (but we’re not admitting to it)!

So folks, we’re going to don our thinking caps, dust off our wrist-rests and pretend for a while to know how and why the world ticks for us as it does. At least we’ll do our best in any case……bearing in mind that we’re not so pompous as to believe that the true workings of the gears of humanity versus Mother Nature are fathomable. Heck even the bankers, the ’stewards’ of our wealth never saw Mother Nature coming! But you’d better believe that she can’t be scammed for too long a time. In the long term Nature, for example in the guise of the markets, rewards us not with what we think we need or desire, but ultimately with what we deserve. We can only get away with risky speculation for so long. In the end the chickens always come home to roost.

Take those central banker’s, i.e. the Alan Greenspans of the world, who must truly have believed that they could simply print as much paper money as they liked to keep their ‘borrow,borrow,borrow’ and ’spend,spend,spend’ economies (B.S.economies!) afloat.

But dear readers this was literally money made out of thin air, not backed by a country’s hard assets or economic output. It was easy money and, whenever you pump easy money into a monetary system in simple terms you tend to get inflationary bubbles, such as the dotcom bubble of 2000 and of course the house price bubble that just went pop in the western world this year (2008). When the bubbles go pop the assets lose their inflated values. In the case of US housing they’re talking about a loss of housing ‘wealth’ in the order of $6-8 trillion – or thereabouts, give a trillion or two (who’s really counting and what does a trillion actually look like anyway???). That could amount to an average of $120,000 per US householder. But of course what everyone’s losing never existed in the first place. Those phoney paper notes printed by the US Federal Reserve have gone back to where they came from, thin air!

Anyway, you get our gist don’t you? There’s a lot under the surface that we’d like to talk about and if you bear with us, we hope to tell it to you in an entertaining a way as possible. It might take a week or two to get into our groove, but check back often and see how we’re progressing. Better still, go ahead and subscribe to our RSS feed or sign up to our regular ultraletter email. We value privacy so it goes without saying that your email address will never get past our website and of course you can unsubscribe at any time. We thank you in advance for your time and brains and hope we can imprint some interesting ideas into them.

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Hey readers, your humble co-editor jq has some pet hates to rant about too….

Pakistan – Some Core Issues

9th November 2008, JQ (co-editor)

I had always promised myself to be the beacon of righteousness in the face of all of the worlds’ wrongs but “home economics” always got the upper hand and until today did not not let me sort the socio-political world of real economics as Adam Smith would like to define. Well the good news [or bad depending upon which side of the scale you are on] is that the genie is now finally let loose by the thought police to play havoc on all of you alternative readers who took time out to find us. I say alternative because like TK mentioned we are different and want to present unique out of the box and possibly witty debate about the ultra problems at hand. So welcome to the ultranomics way of thinking.

I would start with some moans and groans to set the temperament! Then in the coming days we will look at possible resolutions to the ongoing painful points of Asian Economics (particularly in Pakistan) through the “common sense” approach. They say that common sense is very uncommon and honestly speaking not many brain cells seem to have been used so far otherwise Pakistan would not be in the current mess and would not still be banded among the third world countries, even though it is an atomic power.

The basic needs of a human being in today’s world can be summarised under the headings of food, shelter, power, health, safety, communication and transportation. Now if you live in Pakistan please look around and honestly answer as to how many of the population has access to all of these let alone a single one! Pakistan was created “60” long years ago and so far we don’t even have a proper international airport for the capital Islamabad and still are using the old Pakistan Airforce site.

It is shameful that being an agricultural country we are struggling to feed our own people, who in some cases are now forced to sell their own children in order just to get by and pay the bills. What happened to the Muslim Caliphates’ philosophy of being responsible for feeding even the single stray dog? George Orwell wrote: “All men are equal, but some are more equal than others.” I guess this stands true for the people in the driving seats of our poor country Pakistan’s throne who travel in expensive, third-world -country-budget-busting, lush bullet proof cars and eat lavish meals in comparison to a common Pakistani man who is struggling to pay his bills and only striving for daily grub so tell me how can we send a mission to the moon like India did, can anyone answer? Anyone from Suparco!

The Planning Commission of Pakistan believes that around 35 per cent of the Pakistani population are falling below the poverty line while the Pakistan Finance Ministry estimates only 22.3 per cent in accordance with the latest official survey [really have you ever seen a surveyor outside your door?]. This controversy if not resolved immediately, could potentially block the World Bank loan worth $500 million for Pakistan [I thought we had broken the so called kashkol] under the Poverty Reduction Strategy Credit (PRSC), which is desperately required to improve the depleting foreign currency reserves of Pakistan. Under the World Bank conditions Pakistan will have to prepare the PRSP setting targets to reduce the prevalence of poverty and establishing social safety nets in order to obtain a credit line of $500 million from the PRSC. The Finance Ministry is preparing the PRSP document for presenting to a visiting mission of the World Bank but is clueless about which figure is the official line. This really is mind boggling because if we cannot even get our statistics right then how are we supposed to plan our future. What happened to the professional norms and attitudes of the civil servants?

Why do all of the Pakistani roads have to be rebuilt every year? [I have to say the Pakistan motorway is an exception - credit where credit's due]. This is fuelled only by the kickback culture. Call it potato, call it potaato – the word though is “bribe” and will lead to hell fire. We will never know the real reasons why the Karachi bypass fell within days of its opening killing dozens of innocent civilians, so who will pay for their blood and the misery of near and dear ones? Can you put a price tag on anyone’s life? Can you price your own life’s worth?

We were taught in school that the essence of democracy is that it is for the people, by the people and of the people, it is the separation of powers between the executive, legislative, and the judiciary with all of them being independent of each other. In Pakistan no such arrangement exists so far. The Chief Justice of Pakistan Iftikhar Mohammad Chaudhary is a case in point who has yet to get any justice, so does a common Pakistani stand any chance of fairness in his trials?

Though it is true that states such as Pakistan with a weak economy and weaker political structure cannot hope to safeguard their sovereignty from arrogant superpowers such as the US, most Pakistanis still expect their rulers and armies to make a real effort toward this end instead of making hollow claims and raising false hopes [once is enough in 1971 war]. With such low credibility the ruling elite cannot hoodwink the people who now, thanks to the communication revolution and open access to the world media, are much more informed and enlightened and should not be taken for granted because they are able to fully grasp any given situation and arrive at intelligent decisions. We really need to take heed from the strong reaction of Syria’s President Bashar al-Assad’s government, which described the killing of eight Syrians in the attack as a “cold-blooded war crime”, demanded an apology and warned of consequences. With week knees if Pakistan cannot even stop its so called “allies” from attacking its borders then how are the Pakistanis going to get some favourable decision on the good old Kashmir issue?

Questions, questions and more questions! I will end this first journal perhaps for you to ponder and will touch all of the above and more Pakistan and Asian core issues, however my aim is to discuss a way forward and eventually suggest some solutions, yes solutions because we all know the problems by now and its time to get rid of them for good.

jq@ultranomics.com

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