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 Why Latvia Loves the Euro

By Shlomo  Maital     

       Latvia

 

  Tomorrow, Jan. 1, Latvia becomes the 18th nation to adopt the euro,  following Estonia’s euro adoption in 2011.  A third Baltic nation, Lithuania, will adopt the euro in 2015. 

   Why would any country willingly choose to shift to a currency in so much trouble?  It is simple, according to Richard Milne, writing in today’s Financial Times.

   According to Finance Minister Andres Vilks, ““Russia isn’t going to change. We know our neighbour. There was before, and there will be, a lot of unpredictable conditions. It is very important for the countries to stick together, and with the EU.   We have completed our mission” of joining all the main institutions in Europe from the EU to Nato….. “We will be more integrated and protected in case of troubles, and we can see what is happening in Ukraine today.”

     Russia has exerted tremendous pressure on Ukraine, not to sign a free-trade agreement with the EU, and has supplied an enormous $14 b. loan as a tempting bribe.       

    The adoption of the euro came despite huge Latvian opposition to the idea, among the public. A poll last October showed only one Latvian in five favored the euro.   The people of Latvia seemed to believe that along with the euro came austerity, which is partly true. 

    Vilks noted that Russia (and Putin)  “is nervous about losing partners and influence. That is one reason why the Baltics and Finland were so eager to go to all institutions, including Nato. It’s not so easy for small countries to deal with these issues; we need help.”

    According to Milne, Latvia still has close ties with Russia, with about 40 per cent of the bank deposits in the country coming from ex-Soviet states, while about a quarter of its population is ethnic Russian.

     As a small nation, Latvia has little leverage on Russia. But, on the other hand, it also has little importance.  Ukraine, a huge country, is crucial for Russia; Latvia is almost a ‘rounding error’. 

   Latvia’s euro adoption shows the importance of strong political leadership.  How many Western political leaders would face a hugely unpopular decision, and proceed with it anyway, knowing they could well be tossed out of office in the next election.  Kudos to Vilk and little Latvia.  Obama, Netanyahu – do some homework on the Baltic states.  They know things about leadership that neither of you do.

 Technology in 2014: What’s Ahead

By Shlomo  Maital    

        2014

 

 What does 2014 hold in terms of new technology?  According to New York Times columnist Nick Bilton, 2013 was a yawn.  Apple just updated its existing devices all year.  Nothing much happened.

   2014 may be different.  Technology is like sprinters – they pause, prepare, crouch – and then dash, only to repeat the process.  

   Smartwatches will grow rapidly.  Today the global watch industry totals $60 b.  Smart watches could add greatly to that.  They could change the way we relate to the device on our wrists. 

   Cell phones will change.  Improved location sensors mean our phones will start letting us know when we need to look at them, and actively suggesting things we need to do, based on where we are.  

    Corning has developed new flexible screens for TV.  These screens could wrap around poles, even wrap around our clothing or “the packages we buy”, notes Bilton.

    Use of drones will expand.  The FAA will issue rules that enable expanded use of drones for farming, rooftop inspections and a thousand other uses. 

   3D printers will begin to become home appliances.  Gartner says companies and consumers will spend $600 m. on 3D printer related products in 2014.  One key use might be to ‘print’ parts for broken appliances, with instructions downloaded from web sites.

   Most of this still sounds rather humdrum.  Technology often surprises. Maybe, just maybe, some great innovator will think of something truly novel and useful – or perhaps, simply revive something old that has sadly disappeared.  Will YOU be that innovator?

 How to Create Great Memories – And Why We Should

By Shlomo  Maital

            memories

Very few readers will recall the American comedian Bob Hope, whose radio theme song was Thanks for the Memory:      “Thanks for the memory,  of sentimental verse and nothing in my purse, And chuckles when the preacher said, “For better or for worse”,  How lovely it was…”  

   Today’s New York Times has a fine op-ed article by neuroscientist Kelly Lambert.  She observes that “neuroimaging evidence indicates that when certain events are recalled – presumably after being triggered by familiar sights, smells or sounds – emotional brain areas are activated as well as visceral responses. You relive the feelings you experienced in the past.”  I think this is a crucial observation.  Great memories are like a perpetual feast. You experience them once, you remember them many many times.  So it is crucial to shape HOW we remember things. 

   When you are about to make a decision, ask yourself,  how will I recall this?  Will I recall it as one of my finest moments, as an action true to myself, to my values? Or will I relive it, in shame, in sadness, in regret? 

   “Thanks for the memory, Of rainy afternoons that pulls me by the case,  And how I jumped the day you trumped my one and only ace,  How lovely it was…”

    According to Kelly Lambert, “addicted rats experience pleasure when they anticipate receiving cocaine, even if they don’t actually consume it.”  There is another key point here about how to live.  Don’t rush to seize pleasure.  Defer it.  Because the anticipation itself brings pleasure.   

    “We said goodbye with a highball   Then I got as high as a steeple  But we were intelligent people, no tears, no fuss,  Hooray, for us”

      What this means is:   Life is about before, during and after.    Before – if before a happy event – is full of pleasure and meaning.  Don’t rush it.  Create events that you anticipate and look forward to, well in advance.   Then during.  Seize the moment.  Enjoy.  Shape the memory!   And finally after.  Relive the good memories that you were wise enough to create. 

     “So, thanks for the memory, Of sunburns at the shore, darling, how are you?, You might have been a headache, but you never were a bore, I’m awfully glad I met you, cheerio and toodle-oo,  And thank you so much…”

       Lambert notes that there are “benefits of trying to assure that my girls have an emotional holiday portal for their future adult brains”, referring to Christmas.

 Why (and How) We Truly Care About Others – the Amazing Mirror Neurons

By Shlomo  Maital

          mirror neurons

       One day, an Italian neurophysiologist named Giacomo Rizzolatti, Parma University,  will win the Nobel Prize for his amazing discovery of mirror neurons.

  Here is what he found, by accident, like so many great discoveries, and why it is important.

   Rizzolatti and colleagues were studying the nerve cells that controlled hand movements and seizing of objects. 

    The research was very monotonous, as it required the researchers to follow neuron patterns in the brains of macaque monkeys, who were holding peanuts and bringing them to their mouths.  As the monkeys moved their hands, the nerve cells in their brains that controlled the movement fired electrical impulses, which could be seen in the electroencephalogram printout. 

     At one point, one of the researchers picked up a peanut.  He was amazed to see that the same neurons activated in the monkey’s brain, when the monkey itself picked up the peanut, were fired when the monkey saw someone ELSE pick up a peanut.  It was an astonishing finding. How could a neuron, responsible for hand movements, fire when the hand did not move, but someone else’s hand moved? 

   The researchers realized they had stumbled on a revolutionary finding.  The brain possesses unique cells that respond to an animal’s own movements, but also to the SAME movement when performed by other animals.  How come the monkey’s own hand did not move, when the neuron fired? Because other neurons inhibited motor ‘imitation’.  Mirror cells only SENSE the motion, they do not initiate the same motion.

    Humans too have mirror cells, we now know.  This enables us to feel empathy, and to be social animals, to cooperate, to help, to be a team member.  Probably, those mirror cells were created by evolution – humans possessing them were better equipped to survive and procreate than those who lacked them.  And soon, all humans had them.

    Some neurophysiologists deny there are such things as mirror cells. But there are, and they do exist.  They explain much of our human-ness. 

    Some selfish people ignore what their mirror cells tell them; they broadcast very quietly.  But some people increase their sensitivity to the ‘firing’ of mirror cells and become exceedingly caring empathic people.   And since empathy is a key part of innovation, my theory is that great innovators have heightened sensitivity to what their mirror cells tell them about what other people feel and need.

    Kudos, handshakes, to Rizzolatti and the other researchers who refused to say, nuts! to a remarkable, perhaps impossible, observation.  They deserve the Nobel.   

 

 Raise the Minimum Wage — Now!

By Shlomo  Maital

         Mcdonalds workers

   America and Israel both have a chronic poverty problem.  President Obama now speaks of “a relentlessly growing deficit of opportunity” in the U.S.   In Israel, three end-of-year poverty reports reveal a bitter picture of hungry children, a fifth of the population under the poverty line and persisting lack of mobility across income classes.    Most distressing is the working poor.  Many of those in poverty, in America and in Israel, are hard-working, with jobs. But they still can’t make a living, because they are not paid living wages.

   A simple solution?  Raise the minimum wage.   Economist disagree on this.  Some studies show it would hurt employment and actually hurt the working poor. Some studies show it would help.  And of course, you can use econometrics and statistics to show anything you wish.

   Two Princeton Univ. researchers, Alan B. Krueger and David Card,  found a ‘natural experiment’ that helped resolve this issue.  Some 20 years ago, notes Annie Lowrey in her New York Times column, during the 1990/1 recession,  New Jersey raised its minimum wage to $5.05 an hour, from $4.25, while neighboring Pennsylvania chose not to.  Card and Krueger surveyed fast-food restaurants along the NJ-Penn. Border and surveyed them twice, during 11 months, to see how many they employed.  Economic theory says, when labor gets more expensive, you buy less.  But to their surprise, there was no change in employment in the N.J. restaurants, relative to the Pennsylvania ones.  Low-wage work went up in price, but demand for it stayed the same.  McDonalds workers today earn $7.25 an hour, the federal minimum.  Their real wage has gone down since 1992. 

    Despite this study, economists still disagree.  A survey shows that a third of economists thinks raising the minimum wage to $9/hr. would make it harder for low-skilled workers to get a job, a third thinks it wouldn’t, and a quarter don’t have a clue.  So – forget the economists. Do the right thing.  Listen to Card and Krueger.  Raise the minimum wage to $10.  It’s the right thing to do.   

  For the 9 months ending Sept. 30/2013, McDonalds had $21 b. in worldwide revenue,  $6.6 b. in operating profit and $4.2 b. in net income.  Yes, that’s a 20% net margin!   They can afford a small rise in the minimum wage.   And don’t let them tell you they will fire any workers as a result. 

* D. Card, A. B. Krueger, “Minimum wages and employment: a case study of the fast food industry in NJ and Pennsylvania”,  NBER working paper, no. 4509, Oct. 1993.

Three Cheers for Uruguay

By Shlomo  Maital

 

Uruguay 1 

 Uruguay 2

  

   Each year, with much fanfare, TIME magazine chooses its Person of the Year.  This year’s choice is justifiably, Pope Francis, who by changing the Catholic world may change the whole world.  He has just announced his plans to visit the Holy Land and celebrate mass in Bethlehem.  We welcome this humble and courageous man.

    Less noticed is The Economist’s choice of The Country of the Year.  South Sudan was among the candidates; as the world’s newest country, its GDP has risen, but alas, lately, it has hit a bump in the road, with the recently-fired Vice-President challenging the President (with what the President calls a failed attempted coup), and gunfire echoes in the capital, Juba. 

    But The Economist’s choice is… Uruguay!  Great choice.  This tiny country of 3.4 m. people, which suffers collateral damage when its neighbor Argentina implodes (once a decade at least), is strong economically, and has won the World Cup in football twice, and played in the finals several times.    Here is why The Economist chose Uruguary for 2013:

   “ Uruguay, uniquely, passed a law to legalise and regulate the production, sale and consumption of cannabis. This is a change so obviously sensible, squeezing out the crooks and allowing the authorities to concentrate on graver crimes, that no other country has made it. If others followed suit, and other narcotics were included, the damage such drugs wreak on the world would be drastically reduced.

    Better yet, the man at the top, President José Mujica, is admirably self-effacing. With unusual frankness for a politician, he referred to the new law as an experiment. He lives in a humble cottage, drives himself to work in a Volkswagen Beetle and flies economy class. Modest yet bold, liberal and fun-loving, Uruguay is our country of the year.”

   Congratulations Uruguary!  Let people from other countries come visit you and learn from you. I plan to do so in the coming months, with my wife.  

Rebuilding America – Literally!   It’s Really Simple

By Shlomo  Maital

 

Image  Singapore’s Changi Airport

 

Image  A Crowded American airport

     It has been six years since America’s recession began, at the end of 2007, and as New York Times columnist Floyd Norris notes, the U.S. still has fewer jobs than it did then.  

   Why?

   The answer is simple.  The U.S. labor-intensive construction industry has not recovered.  In the spring of 2006 construction employment was 7,476,000;  today, it is 5,851,000.   Nearly 1.7 million jobs were lost in construction.   This has deeply hurt the U.S. economy’s recovery, because construction jobs pay quite well, and underpin a lot of consumer spending.   The housing bubble not only claimed financial victims, from sub-prime mortgages and related assets; it threw many workers out of a job and has not brought them back.  Construction is a major, perhaps the main, drag on the recovery.

   The solution is really simple.  America’s infrastructure is ragged.  The interstate highway system was built in the 1950’s, 60 years ago, under President Eisenhower. It needs investment.  American airports are old, incredibly crowded (see the photo), and need renewal.  Been to JFK lately?  Thousands of American bridges are rusting and crumbling and need replacement.  Many roads inside cities have huge potholes.  Schools need new modern buildings. 

   If government spending were increased and focused on infrastructure investment, the construction industry could recover and lead a general economic recovery. This in turn would help the rest of the world, too.  Such spending is not wasteful, nor harmful, even if it temporarily increased the budget deficit, because it has been proven that infrastructure investment pays a high rate of return.  Will it work?  China proves it does.  China massively invested in construction and investment, when its economic growth flagged during the global economic crisis,  building railroads and highways, and quickly restored its rapid growth.

    But alas, it is unlikely to happen.  There is a Republican-Democrat budget compromise on the table that may avert another U.S. government shutdown, but it includes very small restoration of cuts made under the previous ‘sequestration’ legislation.   And it won’t help construction one bit. 

    America needs rebuilding – its infrastructure, and its society and political system as well.  It has the resources to do it.  But does it have the will?  It seems not.

 

Mandela’s Legacy: What the World Needs Now

By Shlomo  Maital   

Mandela Invictus

 Morgan Freeman as Mandela

    New York Times columnist Thomas Friedman used the death of Nelson Mandela to diagnose precisely what the world’s core problem is, regarding leadership. 

    Mandela trusted his people with the truth, rather than what they wanted to hear. Leaders today tell people niceties. They think this is the road to re-election. It is not. It is the road to mistrust.  We deeply distrust leaders who sugarcoat, who do not tell us the truth.  Mandela asked the whites in South Africa to cede power. This was hard for them.  But he also asked his people, the blacks, to forego revenge. This was equally hard.  De Klerk, white leader, told his people to give up power. Mandela told his to forgive.  Friedman notes, “Mandela’s leadership genius was his ability to enlist a critical mass of South Africans to elevate, to go to a new place, not just shift a few votes at the margin.”

     Today, Friedman observes, millions of people all over the world are newly empowered by Twitter and Facebook to gather in public squares, to demonstrate against leaders, sometimes legitimately elected ones.  These protests are seemingly a renewal of democracy. The problem is, they are just that, protests.  Israel youth staged enormous protests in 2011 against social inequality.  Others created the Occupy Wall Street movement, that demonstrated worldwide.  But in order for protests to achieve anything,  effective leaders have to emerge who gain election and who know how to act.  This has not happened.  Facebook has half the ingredients of social reform. The other half, Mandela-like leaders, is missing.  To create change, you need the whole, not just the half. And it has not emerged from the Facebook,  Tahrir-Square protests. Nor can it.  In Israel a handful of the Social Protest leaders turned to politics, a very few are Knesset members, and the whole protest movement has sputtered and died. 

     The Ukraine will be a key test.  Vitali Klitschko is emerging as a protest leader, and he may take the protest to the next step.  As a champion boxer, he learned discipline, patience, endurance and strategy – and he has a Ph.D.  There are signs the Ukraine President is already backing down and is ready to sign the EU trade pact.  Let’s see if Klitschko really does emerge, to fulfill the Mandela half of the Facebook revolution.

       

GM Chooses a Woman to Lead It:

What’s Good for GM is Good for America

By Shlomo  Maital

             Barra

Mary Barra

  Just hours ago,  General Motors chose its new CEO, to replace retiring Dan Akerson.  Akerson’s wife is battling cancer and Akerson chose nobly to resign, to join her in her battle. 

     The new CEO is Mary Barra and she joins a handful of women who are now leading top global firms:  Xerox, Yahoo, HP and IBM.   Barra’s style is friendly and low-key.  She previously served as VP.    Barra is an engineer, and at long last, finally places a ‘car person’ and engineer at the head of GM, instead of bean-counting financial experts who loved balance sheets more than Pontiacs (a brand that, alas, was killed by such bean-counters).  She understands a simple principle that GM assembly line workers (her father was one) have known for years:  GM will succeed by building great cars, not by managing costs.

    Margaret Thatcher once said famously, “if you want something said, ask a man. If you want something done, ask a woman.”  GM has done just that.

   After Obama and the US Treasury bailed out GM, a highly controversial decision, GM has emerged from bankruptcy.   According to an analyst,  “The bankruptcy transformed the balance sheet, but the transformation of the company is still a work in progress …..only time will tell whether Barra, who has spent her entire career at GM, is the change agent as touted by Akerson.”

   Barra’s specialty is product development and she reorganized GM’s chaotic global car development process.  She now has to stop the bleeding in GM’s Europe division, restore competitiveness for GM in China (Buick has lots leadership to VW there)  and above all, create beautiful reliable sexy cars for people who love cars. 

     Alfred Sloan created GM by stitching together small independent car companies: Cadillac, Chevrolet, Buick, Oldsmobile, Pontiac, and keeping them lean, flexible and competitive (even with one another). GM lost that culture.  Can Mary Barra restore it?  Let’s hope. A lot of jobs depend on it. 

    Barra is only 51, and some feel she lacks experience to run a huge sprawling troubled company like GM.   I strongly disagree.   The old-age pensioners who’ve been running GM have not been outstanding.  Let’s give youth, and women, and engineers, a chance; Barra has those three qualities. 

    This could work for the US Presidency.  Remember Hillary?  Could she have done a lot better than the bumbling Barack?    Sometimes,  indeed, what’s good for GM really is good for America.        

Bitcoin: Toward a World Currency?

A Guide for the Perplexed

By Shlomo  Maital  

       Bitcoin

Bitcoin 2

   What is bitcoin?

     It is a virtual digital currency and person-to-person payment network developed by “Satoshi Nakamoto” (not a real name).  It uses cryptography to secure funds.  When you pay in bitcoins, the money is transferred between Bitcoin addresses that are encoded.   You can store bitcoin addresses in an online “wallet”.

    Bitcoins’ use is growing though it is still small relative to total on-line payments. Bitcoins’ value relative to dollars is set by supply and demand.  Contrary to popular belief, there is actually a physical bitcoin.  You can buy a physical bitcoin, which can be broken open to reveal  a piece of paper with the private code or key to a bitcoin wallet with bitcoins in it.

    Is this real money?

     In a sense yes.  Bitcoin is no more ‘virtual’ than dollars, yuan or euros.  Most money is not paper, but instead takes the form of bank deposits.  Bank deposits are created by a stroke of a bank manager’s pen, when he or she lends money. If the bank goes bankrupt, all those deposits disappear.  What could be more ‘virtual’ than that?

  What determines the value of bitcoins?

  The same thing that determines conventional money’s value – willingness of people to hold it and to give up real goods and services in exchange for it. 

   What do we learn from bitcoins?

  A simple powerful lesson.  America today is  endangering the world’s economy and trading system by printing massive amounts of dollars.  This erodes our trust in the dollar; without a secure currency, we cannot run a global economy. And 80% of foreign trade transactions are still done in dollars.  (Note: The yuan, or renminbi, has just taken over as #2!).   Bitcoins’ amount is more or less fixed.  So their value cannot be destroyed by overprinting.  The value does fluctuate a lot, because of speculation; it started at $50, rose to over $1200, is now done to just over $600….

   Can you, say, travel the world and pay only in bitcoins?

Yes, one couple did.  But it was really really difficult.

    Could bitcoins take over from conventional money?

    No, but – perhaps they should.  In 1944, at the Bretton Woods conference, Keynes suggested a world money, bancor, issued by a world central bank.  This world money would be issued in just the right amount to finance global trade and investment, avoiding both inflation and deflation.  Bitcoin is kind of similar.  It does show that we could, if we wished, create a virtual world money, solely for global trade and finance.  It would avoid the perils of being dependent on the irresponsibly-managed U.S. dollar.  Perhaps we will have to have another serious world collapse to make this happen; even then, America is unlikely to agree.   

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
December 2013
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