Japan Raises Interest Rate

On July 14th 2006, BBC News published an article by Chris Hogg entitled 'Is Japan's economy back in business?'. While this is a good indication that Japan's economy is recovering, not everyone is excited. Here is the article:

The Bank of Japan's decision to raise interest rates by a quarter of a percentage point was not unexpected, but that should not diminish its significance.

The Bank is telling consumers, investors and analysts here and across the world, "Japan is back in business." "Monetary policy is all about stabilising long term expectations," says Dr Martin Schulz, a senior economist at the Fujitsu Research Centre in Tokyo. "This is a signal that the economy has recovered."

Robert Feldman, managing director of Morgan Stanley Japan, agrees. "This is now the second longest recovery in Japan's post-war history, so in hindsight, there is certainty," he says. "The question now is about the future, will it or will it not continue - and there's always uncertainty about that."

So what are the prospects for Japan's economy in the short to medium term, now that it has returned to a more "normal" interest rate policy?

The optimists point to a long list of economic indicators that are going the right way. Unemployment has fallen and still seems to be heading downwards. Prices in the shops are rising after years of deflation - that is, falling prices. Wages, which had been falling for several years, are now starting to creep up again. And the ratio of job vacancies to those looking for work is quite high.

The pessimists worry about what is happening to global growth. They fear that Japanese politicians and bosses could be getting complacent. But analysts say that, while it is prudent to take such factors into consideration, the outlook is basically pretty good.

Hiromichi Shirakawa, chief economist for Credit Suisse in Japan, believes that we will not see another rate hike before the end of the year. He is cautious about the global economic outlook - and he believes many Japanese companies are being over-optimistic about their prospects for growth and profits. "Input prices [the cost of raw materials used to make goods] are rising, but output prices [the price charged to the consumer] can't rise, because competition is fierce. "Because they're finding it difficult to pass those increased costs on to consumers, it hits profits. "I think that as a result, Japanese companies will find it hard to increase wages until the middle of next year, so it will be difficult to raise interest rates again until the second half of next year," he adds.

Much of the pressure to raise interest rates came from households, according to Dr Schultz. "Households were tired of zero interest rates," he says.

"The baby boomer generation born after World War II is about to retire and needs interest from their savings. Wages haven't risen that much during the last few years of their working life. "With little expectation of significant wage hikes in the next couple of years, they wanted higher interest rates."

But a study by the Dai-ichi Life Research Institute suggests only the rich and the elderly will really benefit from this very small rise. "The elderly are usually free of loans and so can enjoy the increase in their income from interest," says Hideo Kumano, the Institute's chief economist. "The younger generation, particularly those in their 30s, will have to pay more for their mortgages than they get back from any increase in interest income."

Japan used to be a nation of savers, but now one in four people here has no savings at all. And 12% of households hold more than half of all the money kept in savings and deposits. "There is a gap between the 'haves' and the 'have-nots' when it comes to benefiting from this rate hike", Hideo Kumano says. And that is a growing concern here in Japan - a country that once regarded itself as pretty uniformly middle-class is seeing an increasing disparity between rich and poor.

How to deal with that issue will be a theme that could dominate political debate here in the months to come, perhaps more than whether or not another rate rise is needed.

Biofuels: Corn vs. Soybeans

Alexei Barrionuevo recently wrote an article for The New York Times entitled 'It's Corn vs. Soybeans in a Biofuels Debate'. Here is the article:

Biodiesel produced from soybeans produces more usable energy and reduces greenhouse gases more than corn-based ethanol, making it more deserving of subsidies, according to a study being published this month in The Proceedings of the National Academy of Sciences.

The study, done by researchers at the University of Minnesota and at St. Olaf College in Northfield, Minn., points to the environmental benefits of the biodiesel over ethanol made from corn, stating that ethanol provides 25 percent more energy a gallon than is required for its production, while soybean biodiesel generates 93 percent more energy.

The study’s authors also found that ethanol, in its production and consumption, reduces greenhouse gas emissions by 12 percent, compared with fossil fuels. Biodiesel, they said, reduces such emissions 41 percent, compared with fossil fuels.

The study concludes that the future of replacing oil and gas lies with cellulosic ethanol produced from low-cost materials like switch grass or wheat straw, if it is grown on agriculturally marginal land or from waste plant material.

Indeed, the study published by the National Academy of Sciences found that neither ethanol nor biodiesel can replace much petroleum without having an impact on food supply. If all American corn and soybean production were dedicated to biofuels, that fuel would replace only 12 percent of gas demand and 6 percent of diesel demand, the study notes.

Researchers at universities and at the United States Agriculture Department have debated ethanol’s benefits as policy makers continue to struggle with how to respond to high gasoline prices and how to reduce America’s dependence on foreign oil.

Some lawmakers have urged an end to federal subsidies of 51 cents a gallon for ethanol refiners. The subsidies have helped create a boom in ethanol production and have made ethanol more profitable than ever.

The researchers in the latest study question ethanol’s environmental benefits, noting that despite the 12 percent reduction in greenhouse gases, ethanol has “greater environmental and human health impacts because of increased release of five air pollutants and nitrate, nitrite and pesticides.”

Neither biofuel was cost-competitive in 2005 without subsidies. Biodiesel cost 55 cents a liter to produce, or 20 percent more than ethanol. Wholesale gasoline prices in 2005 averaged 44 cents a liter, or 4 percent less a liter to produce than ethanol, the study said. Still, biodiesel receives a subsidy that is 45 percent greater a liter than ethanol.

Analysts agreed with the study’s conclusion that biodiesel compares favorably with ethanol from an environmental standpoint. “Biodiesel is much cleaner-burning fuel and much less harmful to the environment,” Daniel W. Basse, president of AgResource in Chicago, an economic forecasting firm, said Wednesday.

But Mr. Basse said ethanol production is far more efficient, with some 420 gallons of ethanol produced per acre of corn versus only 60 gallons of biodiesel per acre of soybeans. If biodiesel use ever increased greatly, Mr. Basse said, the cost of soybean oil would rise significantly.

Brent Erickson, executive vice president of the Biotechnology Industry Organization, based in Washington, agreed that biodiesel’s potential was limited. “If you look at the amount of biodiesel you can produce, it is a drop in the bucket compared to the amount of cellulosic ethanol that could be produced one day,” he said.

The Minnesota researchers write that with a projected doubling of global demand for food within 50 years and an even greater expected increase in demand for transportation fuels, “there is a great need for renewable energy supplies that do not cause significant harm and do not compete with food supply.”

Ali G. Interviews Noam Chomsky

This post is slightly off topic, but I enjoyed the interview. It's amazing what you can find on YouTube. Here is a masterful interview by Ali G with MIT Linguistics Professor Noam Chomsky.

Zimbabwe's Hyperinflation

The New York Times recently published an article by Michael Wines entitled 'How Bad Is Inflation in Zimbabwe?'. As for the spike in 2004, "The rise was caused by a flight of foreign capital, shortages and a steep increase in the money supply. The fall was caused by a rise in interest rates and an economic slowdown." Here is the first portion of the article:

How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417. No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 — in American currency, about 69 cents.

The price of toilet paper, like everything else here, soars almost daily, spawning jokes about an impending better use for Zimbabwe's $500 bill, now the smallest in circulation. But what is happening is no laughing matter. For untold numbers of Zimbabweans, toilet paper — and bread, margarine, meat, even the once ubiquitous morning cup of tea — have become unimaginable luxuries. All are casualties of the hyperinflation that is roaring toward 1,000 percent a year, a rate usually seen only in war zones.

Zimbabwe has been tormented this entire decade by both deep recession and high inflation, but in recent months the economy seems to have abandoned whatever moorings it had left. The national budget for 2006 has already been largely spent. Government services have started to crumble.

The purity of Harare's drinking water, siphoned from a lake downstream of its sewer outfall, has been unreliable for months, and dysentery and cholera swept the city in December and January. The city suffers rolling electrical blackouts. Mounds of uncollected garbage pile up on the streets of the slums.

Zimbabwe's inflation is hardly history's worst — in Weimar Germany in 1923, prices quadrupled each month, compared with doubling about once every three or four months in Zimbabwe. That said, experts agree that Zimbabwe's inflation is currently the world's highest, and has been for some time.

Public-school fees and other ever-rising government surcharges have begun to exceed the monthly incomes of many urban families lucky enough to find work. The jobless — officially 70 percent of Zimbabwe's 4.2 million workers, but widely placed at 80 percent when idle farmers are included — furtively hawk tomatoes and baggies of ground corn from roadside tables, an occupation banned by the police since last May.

Those with spare cash put it not in banks, which pay a paltry 4 to 10 percent annual interest on savings, but in gilt-edged investments like bags of corn meal and sugar, guaranteed not to lose their value.

"There's a surrealism here that's hard to get across to people," Mike Davies, the chairman of a civic-watchdog group called the Combined Harare Residents Association, said in an interview. "If you need something and have cash, you buy it. If you have cash you spend it today, because tomorrow it's going to be worth 5 percent less.

"Normal horizons don't exist here. People live hand to mouth."

President Robert G. Mugabe has responded to the hardship in two ways.

Although there is no credible threat to his 26-year rule, Zimbabwe's political opposition is calling for mass protests against the economic situation. So Mr. Mugabe has tightened his grip on power even further, turning the economy over to a national security council of his closest allies. In addition, he has seeded the government's civilian ministries this year with loyal army and intelligence officers who now control key functions, from food security to tax collection.

At the same time, Mr. Mugabe's government has printed trillions of new Zimbabwean dollars to keep ministries functioning and to shield the salaries of key supporters — and potential enemies — against further erosion. Supplemental spending proposed early in April would increase the 2006 spending limits approved last November by fully 40 percent, and more such emergency spending measures are all but certain before the year ends.

Wal-Mart's Green Goal

On July 13th 2006, CNN published an article entitled 'Gore takes green talk to Wal-Mart'. Is this more empty rhetoric or a valid attempt to move in a better direction for Wal-Mart? Either way, here is the article:

Wal-Mart Stores hosted former Vice President Al Gore at a conference Wednesday evening that the company said is the next step in its efforts to improve the environment. The company said the conference at its Bentonville, Ark., headquarters, dubbed the quarterly sustainability network meeting, included Gore's presentation on the dangers of global warming, as well as one from officials of the Rocky Mountain Institute and the Evangelical Environmental Network. The meeting also included discussions with Wal-Mart suppliers on how sustainability can impact the supply chain and benefit the customer, according to the statement from the world's largest retailer. Suppliers who were at the meeting included Procter & Gamble, Sara Lee Apparel and Paramount Classics.

"We are all passionate about making real progress regarding the environment," said a statement from Wal-Mart CEO Lee Scott. "By working together, we can help each other save money, reduce greenhouse gas emissions and pass the savings on to our customers. Sustainability is good for the environment, and it's also good for business." In addition to his remarks to the conference, Gore screened his movie, "An Inconvenient Truth," about the threat of global warming.

Earlier this year Wal-Mart announced that it would seek to eliminate 30 percent of the energy used by stores, with the corporate goal of eventually being fueled 100 percent by renewable energy. The retailer also plans to eliminate 25 percent of the solid waste from U.S. stores in the next three years, with the corporate goal of producing zero waste.

Wal-Mart also is targeting increased efficiency of its truck fleet by 25 percent over the next three years, with efficiency doubled within 10 years except in the North, where Wal-Mart utilizes white reflective roof membranes, resulting in a 10 percent lower cooling load.

The company has been the subject of criticism from labor and other public interest groups. One of those groups, WakeUpWalMart.com issued a statement saying it is skeptical about Wal-Mart's environmental goal. "While we are glad Wal-Mart is talking about environmental sustainability, Wal-Mart's long record of inaction and empty rhetoric leaves us deeply skeptical about Wal-Mart's true intentions," said the group's statement. The group called on Gore to help police Wal-Mart's environmental practices. "We hope Vice President Gore will join with us in our national campaign effort to make Wal-Mart not just an environmentally-friendly, but an employee-friendly company as well," the statement said.

Lobbying Costs Keep Growing

Political Money Line recently published an article entitled 'Lobbying Costs Keep Growing'. With the health care industry as the top spending sector, could this mean that politicians receive more political contributions from doctors and hospitals the longer this health care crisis remains unresolved? Here is the article:

Federal lobbying of the legislative and executive branches totaled $1.2 billion ($1,201,255,222) during the last six months of 2005. This is the first period lobbying expenditures have averaged over $200 million a month. For all of 2005 the total spent was $2,363,102,190.

In the first six months of 2005 lobby expenditures were 1,161,846,968. In the last six months of 2004 expenditures were $1,079,216,927.

Top Industry Sectors:
Health Care $183,324,757
Communication/Technology $158,841,159
Finance/Insurance $155,734,737

Top Organizations Spending:
Chamber of Commerce of the US $10,540,000
General Electric $10,360,000
AT&T Inc & SBC $10,360,000
US Chamber of Commerce Inst. For Legal Reform $10,250,000
American Medical Assn $9,720,000
AARP $8,472,064
Northrop Grumman $7,507,000
PhRMA $7,220,000
American Hospital Assn $7,080,000
Southern Co $7,020,000

Top Lobbying Firms:
Patton Boggs, 380 clients, $18,360,000
Akin Gump et al, 152 clients, $15,515,000
Van Scoyoc Associates Inc, 255 clients, $13,840,000

View full summary listings and rankings.

Lobby spending reports for the first six months of 2006 are due in August.

Global Warming Evidence

On July 11th, 2006 Professor Mark Thoma posted an article from the Financial Times entitled 'What do we do now the climate wolf is at the door?'. If "what we put up stays up for 200 to 300 years" and a majority of the CO2 emissions have been in the past 100 years, how will this world look in 2150? Here are some snippets from the article:

The little boy who cried “wolf” was finally proved right and was gobbled up as punishment for his earlier pranks. Malthusians have been crying wolf for a couple of centuries. But in global warming they may well have seen a real one. ... Is global warming a wolf at our door?

The argument that it is starts with the observation that some atmospheric gases generate a greenhouse – or warming – effect. This is an excellent thing since they make the earth’s surface temperature about 30ºC warmer than it would otherwise be. But, as concentrations of greenhouse gases rise, so will the the temperature (... other things ... equal)...

Since the 18th century, there has been a big increase in the output of man-made (anthropogenic) CO2, largely as a by-product of the burning of fossil fuels... Concentrations of CO2 in the atmosphere have risen from about 280 parts per million in the 18th century to 380 parts today. This is ... higher than in the last 420,000 years and possibly the highest in 20m years (though levels have been higher still in the more distant past). The 10 warmest years on record have occurred since 1994, with an average global warming of 0.7ºC since 1900.

Concentrations of CO2 are headed much higher still. Under plausible assumptions, human-caused emissions of greenhouse gases... will tend to rise over the next half century. ... because of the rising use of fossil fuels... [and] further deforestation. ...

If trends of the past half century were to continue, concentrations would reach 550 parts per million by 2050. That level would itself raise global temperatures by between 2.2ºC and 3.6ºC by 2100. The continents might warm by between 2.2ºC and 6.2ºC and the Arctic by between 3.6ºC and 11.4ºC. Such changes could well be associated with extreme events: reversal of the oceanic currents...; and the melting of permafrost and subsequent release of huge quantities of methane. Feedback effects might push temperatures higher than at any time in the last 50m years. The world would be a different place...

I have no intellectual difficulty with this argument, since it is grounded in scientific reasoning. Nevertheless, it raises several further questions. First, how certain are we of the magnitudes of potential warming? Second, how far is the warming itself a “bad thing”? Third, is there any chance that we will, in practice, find a workable way of dealing with it? Finally, what can and should we do about it, while taking into account both the benefits and the costs of any actions?

The answer to the first of these questions is that there remain substantial uncertainties in long-run climate forecasts, as can be seen from the ranges I have given. ... But the forecast direction of change at least seems plausible...

The answer to the second question is trickier... It is, after all, not obvious why a warmer world would be such a bad thing. ... There would certainly be beneficiaries of global warming, perhaps very many of them. But sudden changes impose huge costs of adjustment that would include the disappearance of habitats. Life would survive this... But the adjustment would surely prove disruptive, with an overwhelming probability that the poor would suffer most...

Now we come to the hard questions – what will, can and should be done? The answer to the first is already quite clear: next to nothing. Emissions continue to rise, ... since 1990 aggregate human emissions ... have risen at 1.1 per cent a year. ... Above all, emissions are above the level needed to stabilise concentrations of greenhouse gases (measured in CO2 equivalents) even at 550 parts per million.

For that to happen, emissions in 2050 would need to be no greater than they were in 1990 (which was 12 per cent below 2002 levels) and as much as 50 to 60 per cent below levels forecast for 2050... It is important to note, moreover, that ... even cutting CO2 emissions by 20 per cent below current trends only postpones the date at which we reach 550 parts per million by 15 years. The cuts have to be bigger than this because what we put up stays up for 200 to 300 years.

A betting person who accepts the growing scientific consensus would wager that global warming is going, like the wolf, to gobble us up. But what could and should we do, instead? Are there technological fixes? Is there a policy regime that might be adopted and (unlike Kyoto) make a difference? Do the benefits of action outweigh the likely costs, or should we merely try to adapt? These are the questions to which I will turn in the final column in this series, next week.