Bernanke's money printing idea is interesting - but I have a better one

I'm no fan of Federal Reserve chairman Ben Bernanke. Bernanke's response to the 2008 credit crisis was to first state that it wasn't happening and then, when it happened, to say that it wouldn't be too bad. Fail. Moreover he was one of the members of the Federal Reserve Board under previous chairman Allan Greenspan who approved of policy keeping interest rates too low between 2002 and 2005, thus creating the conditions for the property bubble. Epic Fail.

But credit where credit's due - the recent announcement of $600 billion in bond repurchases is a step towards a more effective form of monetary policy, though I do question whether it is needed.

Bernanke has the dubious honour of being labelled "Helicopter Ben" because of some comments he made many years ago about how radical monetary policy could have solved the Great Depression. Given the damaging, persistent deflation during that period, Bernanke surmised that increasing the money supply by seigniorage (money printing) and then handing said money out willy nilly to people and businesses would have wiped out deflation and stimulated the economy to begin growing.

Of course those who ran the world economy in the 1930s did not have the information that we do now, namely that inflation and deflation can be controlled through manipulation of the money supply by central banks. The problem with conventional monetary policy is that it focuses solely upon interest rates to achieve its goal - in the case of the United States, adjusting the Federal Funds Rate is the way interest rates are raised or lowered. Developed countries have similar tools while developing countries tend to increase or decrease the reserve ratio as a way to influence monetary conditions.

Adjusting interest rates affects the money supply: Increasing interest rates will remove money from the money supply while decreasing interest rates will add money to the money supply. If a central bank wants to reduce inflation, it removes money from the money supply by raising interest rates; if a central bank wants to increase inflation (to prevent deflation), it adds money to the money supply by lowering interest rates.

Unfortunately, conventional monetary policy is constrained by the natural limits of interest rates. While there are no upper limits to interest rates, the lowest rate is obviously zero. You cannot have negative official interest rates because depositors will simply withdraw their money from banks - hiding cash under the bed is a better investment than keeping it deposited at the bank. When interest rates reach zero there is nothing conventional monetary policy can do to stimulate domestic demand - Japan is a classic example of this, with interest rates near zero for the last 15-20 years.

The Federal Funds rate is currently 0.20%. It has been below 1% since 2008-10-15, which means that the US has, for the past two years, reached the limit of conventional monetary policy. Enter Ben Bernanke and quantitative easing, and you have a radically new monetary policy tool.

The thinking is rather simple:

• To create more inflation, the money supply needs to be expanded.
• Since conventional monetary policy has reached its limit, no more money can be added to the money supply through the lowering of interest rates.
• Therefore money needs to be added to the money supply through different means.
• Seigniorage (money creation by fiat) is then used to buy back government bonds, thus increasing the money supply.

Seigniorage has been used injudiciously in the past, most notably by Weimer Germany and Mugabe's Zimbabwe, and has created hyperinflation. Yet this is the same process Bernanke is undertaking now. The difference is that the amount being created is limited, which means that the inflationary effect will be similarly limited.

But there are naturally limits to even this level of monetary policy - it is limited by the amount of government bond holders (US treasuries). While the amount of money currently tied up US government debt is huge (over $9 trillion in public debt), in theory this amount may be brought down to zero. This is an important limit for nations like Australia and Norway, whose gross government debt levels are comparatively low (and are actually net negative). Such forms of quantitative easing (as this policy is now known as) do have natural limits that need to be taken into consideration.

So what's my idea then?

Back in March 2009 I wrote an article titled Thoughts on fractional lending and quantitative easing which outlined some ideas I had at the time about unconventional monetary policy. Here it is:

The Central Bank creates money by lending it to Commercial Banks.

This would take the form of a deposit. The central bank creates money by fiat, and then deposits this money in as many banks and financial institutions (institutions that are part of the fractional banking structure) as it can find. This won't be a bond buyback, but a simple deposit. It is not important as to whether the commercial banks pay interest on such a deposit since paying back interest is not important - expanding the money supply is.

Of course, with more money deposited, commercial banks would then have more money to lend out, thus alleviating any credit crisis. There is no money entering the money supply via any bond buybacks or stimulus plans. It's simply money appearing by fiat and being deposited into banks.

But what happens once the economy begins to recover, credit begins to flow again and inflation begins to rise? Well obviously the central bank could then withdraw all or part of its deposit with commercial banks. This would reduce the amount of money commercial banks could lend out and act as a contraction of the money supply.

And then I got thinking again - what if this form of quantitative easing replaced current monetary policy completely? So rather than money being removed or injected into the money supply through bond issues or buybacks - why not simply have the central bank deposit money into commercial banks or withdraw money from its commercial bank accounts? It would still be an open market operation, but one which doesn't require a government bond market to exist or even some form of centrally set level of interest - rates would be completely market controlled and dependent upon how much money the central bank deposits into, or withdraws from, commercial banks.

So, to summarise:

To stimulate growth in the money supply (to battle deflation and thus stimulate economic growth), the central bank creates money by fiat and deposits it into commercial banks.

To restrict growth in the money supply (to battle inflation and thus restrict economic growth), the central bank withdraws money from its commercial bank accounts.

In both cases, the money supply is affected by the ability of the commerical bank to lend up to 100% of its deposits - the more deposits, the more money is lent; the less deposits, the less money is lent.

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Naturally, Paul Krugman and others will point out that increasing the money supply during a solvency crisis does little (the "pushing a string" theory) and I would agree that some level of Keynesian stimulus might be necessary, but one which sources its money from central bank money creation rather than by borrowing from the market.

In this scenario, instead of Bernanke's $600 billion being used to buy back government bonds, it is used (for example) to build wind turbines all over the country. It is monetary policy (money creation) AND fiscal policy (increase in production) acting together, and it is aimed at bettering the environment. Of course the $600 billion could be used to build tanks and machine guns for the army, or it can be used to buy everyone in the US multiple cans of Coca Cola, or it can be used to build mansions for the rich, or it can be used to build houses for the poor - the possibilities are endless, as is the potential for both intelligent or stupid spending.

What makes standard Keynesian fiscal policy work is twofold: firstly, money is injected into the economy, and, secondly, goods and services are produced, leading to a multiplier effect. Modified forms of Keynesian stimulus - such as Bush's tax cuts in the early 2000s - have only a single effect, namely money is injected into the economy. Monetary policy, even of the unconventional (quantitative easing) or radical (my March 2009 proposal) variety, has a similar effect: money is increased, but its demand (money velocity) is not. What the market does with the money after it has been gained depends upon how the market is acting, which is why monetary and/or fiscal stimuli do lead to some level of economic growth, but not as much as that enjoyed by a true Keynesian injection.

So the question comes down to this: what will the markets do with the $600 billion that Bernanke injects into the economy through "QE2" (as many have called it)? That, of course, is the issue. Will the markets use that money to invest back into the US economy or will they do something else? The markets have already reacted to the announcement by dumping some of their US dollar holdings, so it may be that QE2 just leads to a dollar devaluation, with the fiat money instead being directed towards Japan, Europe and other major economies. Here in Australia the dollar has breached parity and made buying CDs and books from Amazon.com that much cheaper. Thanks for stimulating the Australian economy, Ben.

But then all this goes back to whether the money supply should be increased. While US inflation is low (currently 1.14%, year on year) deflation is hardly a problem just yet. Deflation hit the US economy very hard in late 2008 when the credit crisis hit, but since then prices have stabilised somewhat. Paul Krugman and others would argue that the US should actually target 4% inflation as a goal rather than as a limit, in which case Bernanke's policy is heading in the right direction. Interest rates have certainly bottomed out, but where is the deflation that can't be influenced by conventional monetary policy?

And this therefore calls to question the reason for quantitative easing. Is Bernanke aiming to stimulate the US economy or is he simply trying to maintain price stability? If it were the latter, then Bernanke is crazy since the US doesn't have a problem with price stability at the moment (unless you adhere to absolute price stability like I do, of course, but that's another topic!), which means that QE2, as an inflationary policy, is being implemented when prices are not in danger of deflating. This can only mean that Bernanke is aiming to stimulate the US economy, and this is problematic.

Who in government should be responsible for direct actions to stimulate the economy? In most nations this responsibility is undertaken by politicians - in other words, elected officials. The Federal Reserve Bank is not run by elected officials but by public servants. Most central banks the world over see price stability as their major, if not sole, concern. Stimulating economic growth should not be the role of a central bank, though central banks should be open to being co-opted by governments to produce outcomes aimed at stimulating growth (an example being my proposal of Bernanke's $600 billion being used to build wind farms above). But if any policies are pursued to stimulate economic growth, they must originate from, and be ultimately controlled by, congress or parliament or diet or duma.

The problem with having a dual role - as the Federal Reserve obviously has - is that it is more open to corruptive influences. "Stimulating the economy" may mean dumping $600 billion into the accounts of troubled financial giants whose incompetency is what drove them to the verge of bankruptcy; it's not a coincidence that these financial giants just happen to own a considerable number of US treasuries that they can sell to the Federal Reserve Bank for the $600 billion being offered. If the Fed was only concerned with price stability they could simply ignore these troubled corporations and only respond to price signals from the Consumer Price Index.

Nevertheless QE2 does open the doors to monetary experimentation, which should be welcomed by those who have been concerned with the limits of interest-rate-based monetary policy.

Update 00:15:00 UTC

If $600 billion were used to build wind farms, the result would be huge. The Cape Wind project will produce 454MW for $2.5 billion. Using simple maths, $600 billion could buy 253.34 GW of nameplate electricity generation. Since the US has around 1075 GW of nameplate electricity generation, you're looking here at 25% of the US electricity market. Obviously these are hard and fast facts and there are certainly limitations to this form of extrapolation, but the sheer amount of money involved here needs to be subject to opportunity cost: would $600 billion of fiat money be better spent constructing wind turbines or injected into the US bond market?

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A blog post with every single category marked (I'm doing this for scribefire)

No. 135

Graeme Hick, 101 vs Warwickshire, 18 April 2008.

Deflation is under control in Zimbabwe

From the department of deflation is bad:

Zimbabwe's annual inflation rate has soared to over 100,000 per cent, according to official figures.

"The year-on-year inflation rate for the month of January 2008, as measured by the all items Consumer Price Index (CPI) stood at 100,580.2 per cent, gaining 34,367.9 percentage points on the December rate of 66,212.3 per cent," the Central Statistical Office (CSO) said in a statement.

"This means that prices as measured by the all items CPI increased by an average of 100,580.2 per cent between January 2007 and January 2008."

Inflation of food and non-alcoholic beverages reached 105,428.0 per cent while non-food inflation was 97,885.7 per cent."

The southern African country's economy has been in a tailspin for the past seven years, characterised by shortages of basic commodities like sugar, cooking oil and petrol.

While the products are readily available on a burgeoning black market, many Zimbabweans have resorted to buying their essentials from neighbouring countries like Botswana, South Africa and Zambia.

At least 80 per cent of the population is living below the poverty line, often skipping meals to stretch their income which frequently fails to cover basic needs.

The government has introduced several measures to try and curb inflation, including imposing a ceiling on the prices of some goods and services and knocking three zeros off the country's currency.

The CSO last released monthly inflation statistics to the media in September. The November figure was only released by the central bank chief in a statement last month.

It's good to know that Zimbabwe isn't going to collapse into some deflationary spiral anytime soon. That would ruin the country.

Zimbabwe is fading away

From the department of the-end-of-the-world-is-indifference:

Reports from Zimbabwe say bakeries have run out of flour and there will be no bread in the foreseeable future.

The Agriculture Ministry has confirmed that this year's wheat harvest yield of 145,000 tonnes is only one third of the country's requirements.

Agriculture Minister Rugare Gumbo is quoted as blaming the shortages on the failings of what he called the "new farmers" created by the land reforms.

Last week, the government announced it would import 100,000 tonnes of wheat.

But even that would still leave Zimbabwe short of its 400,000 tonne target for this year.

And it appears that a shortage of hard currency has already stranded a shipment of 35,000 tonnes of imported wheat at the Mozambican port of Beira.

Last week, Zimbabwe's main bread producer Lobels Bread said it had scaled back its operations by 80% and had only two days' supply of flour left.

The AP news agency says stores across Zimbabwe are now telling customers that bread will not be available until further notice.

Let me reiterate. Zimbabwe is not nearing collapse, it has collapsed already. People are already dying there. Zimbabwe won't disappear, it will just keep shrinking. The lucky ones have moved to South Africa.

Zimbabwe encourages poverty again

From the department of I'm-wondering-whether- Mugabe-is-deliberately-trying-to-destroy-his-country:

The Zimbabwean parliament has passed a bill to move majority control of foreign-owned companies operating in the country to black Zimbabweans.

The goal is to ensure at least a 51% shareholding by indigenous black people in the majority of businesses.

The bill completes a process that began with the controversial seizure of white-owned farms starting in 1999.

Zimbabwe is currently experiencing the world's highest inflation and shortages of food, fuel and foreign currency.

The bill still has to go to the upper house - the Senate - for final approval. It already has the support of President Robert Mugabe's government.

If passed in the Senate, the practical effect of the bill may, however, be severely limited, says the BBC's Peter Biles in Johannesburg.

Many foreign companies in Zimbabwe are already operating at a low level, with reduced turnover resulting from the seven-year economic crisis.

Zimbabwe "close to collapse"

From the department of it-has-already-collapsed:

Zimbabwe is closer to complete collapse than ever, and the regional initiative to find a negotiated political solution must be fully supported, a report says.

The International Crisis Group, based in Brussels, says Southern African countries are the only ones with a chance of making a difference.

South Africa's president is trying to mediate between Zimbabwe's governing Zanu-PF party and the opposition.

But the independent think tank says this regional initiative is fragile.

It points out that some Southern African leaders remain supporters of Zimbabwe's President Robert Mugabe and there is a risk they will accept cosmetic changes that further entrench the status quo.

At what point will someone (important) say "Zimbabwe has already collapsed. How are we going to pick up the pieces?"

Zimbabwe in currency devaluation

From the department of good-solutions-applied-years-too-late:

Zimbabwe has devalued its currency as part of its battle to tackle its deepening economic crisis.

One US dollar now buys 30,000 Zimbabwe dollars on the official market, having previously earned 250 Zimbabwe dollars.

However dealers said that on the illegal market, $1 was buying 250,000 of the Zimbabwean currency

Latest figures put Zimbabwe's annual inflation at 7,634%. The International Monetary Fund (IMF) has warned it could reach 100,000% by the end of the year.

Finance minister Samuel Mumbengegwi unveiled the devaluation in a budget announcement.

Other reforms included waiving taxes on some lower earners and increasing stamp and excise duties.

The devaluation announcement was described as a "move in the right direction" by former head of the National Chamber of Commerce, Luxon Zembe.

However he said that the gap between the official rate and the market rate needed to be narrowed.

Zimbabwe on a high

From the department of at-least-Hitler-was-able-to-control-hpyerinflation:

Zimbabwe's inflation rate has leapt to a record high, official data showed, raising pressure on President Robert Mugabe to ease an economic crisis that foes hope will weaken the veteran leader.

Zimbabwe's inflation - already the highest in the world - hit 7,634.8 per cent in July, reminding Zimbabweans there is no relief in sight from daily hardships including chronic food, fuel and foreign currency shortages.

Although the Government says the inflation figure is correct, many analysts and critics say it is likely much higher. The International Monetary Fund said last month inflation may reach 100,000 per cent by year-end.

3 Million have fled Zimbabwe

Voting with their feet:

Over 3m Zimbabweans are thought to have left their homeland (out of a population of 13m), most of them for South Africa. It is there that many already have friends or relations and where the economic opportunities are presumed to be best. But these emigrants are now causing problems far beyond the border.

5000% Inflation in Zimbabwe, and climbing

The BBC reports:

By any measure, Zimbabwe is in deep financial trouble.

In many stores, the shelves are nearly empty much of the time, and prices are skyrocketing for what goods remain as hyperinflation sets in.

About four out of five people are estimated to be out of work - at least as far as the official economy is concerned.

The situation is so bad that about 3,000 people a day are thought to be crossing Zimbabwe's borders into neighbouring countries.

And increasingly, many Zimbabweans are dependent on support from relatives and friends abroad to keep food on the table and roofs over their heads.

Zimbabwe's Chaos up close

The Economist:

Twenty kilometres outside Harare, a 40-year-old teacher explains that she cannot survive on her monthly earnings of 1.9m Zimbabwean dollars, equivalent to $7,600 at the official exchange rate but only $7.60 on the black market. Her husband makes even less. She walks 5km to work every day only “because there is nothing else to do”, but some of her colleagues no longer show up at all. She grows vegetables in her back yard; the greens, she says, are “our chicken and our pork, our eggs and our beef”.

There is no running water for most of the day, so she fills buckets and bottles whenever taps work and has to boil the water as it is no longer safe to drink. Electricity is also scarce, so she cooks on a wood fire in her back yard and buys candles whenever she can afford to. She wears a worn-out anorak and woollen hat in her small house, as she cannot afford heating to fight the biting winter cold. To feed and school her three children, she borrows money to buy a few things, then goes to South Africa or Zambia to sell them.

Zimbabwe falling further into the mire

From the ABC:

For the past week food has been hard to come by in Zimbabwe's shops.

A Government order for businesses to halve prices emptied most shelves within hours.

Since then basic food items have only been available on the black market at prices that are out of reach of most people.

Mr Tsvangirai has warned of an impending humanitarian crisis.

"It's very difficult to assess, but I think it's just a struggle for survival on a daily basis," he said.

"There's no bread, there's no salt, sugar, all those basics. And this has happened just over this last week."

Zimbabwe cricket continues to suck

From Cricinfo:

A report by the BBC's Mihir Bose claims that Malcolm Speed does not believe Zimbabwe should be allowed to resume playing Test cricket in November, and that there the board's accounts have been "deliberately falsified".

In his BBC blog, Bose writes that he has seen a copy of Speed's confidential report delivered to the ICC board today in which he says: "My personal view, shared by the cricket committee and ICC senior management, is that the game in Zimbabwe and, more widely, the rest of the cricket world, will not be well served by Zimbabwe resuming Test cricket at this stage. It is respectfully suggested that we must find other ways to assist cricketers in Zimbabwe".

Speed's most damning comments concern the controversial forensic audit and raises serious concerns about the governance and financial accountability of Zimbabwe Cricket (ZC). The observations seem to give a strong endorsement of claims made for several years by stakeholders and administrators inside the country.

The main discrepancy concerns payments totalling $640,350 to "three unknown companies" which the board failed to inform the auditors about. There are also queries relating to a deal with a car company worth $972,000. The board is believed to have imported the vehicles and then sold them to obtain extra local currency in direct contravention of the country's strict foreign-exchange regulations. The issue is further clouded because the board advised the forensic auditors that no cars had been imported or sold.

Windies refuse to to Zimbabwe

A good idea.

Lessons from the Human Development Index

I love looking at this document.(pdf file, 129kb) It's essentially an attempt by the United Nations to quantify living conditions around the world. It's based on a number of different things, including GDP per capita, literacy, child mortality rates and so on.

Each nation (mostly) has been investigated since 1975 and given a 3 digit number expressed in decimal points. Australia, for example, has a HDI value of 0.957 and is third on the list (Norway is 1st with 0.965). The poorest nation, Niger, has a HDI value of 0.311.

Essentially, any growth in the number over time reflects an improvement in that nation's standard of living. "High Human Development" nations are those with HDI values of 0.800 and over, and could be classed as "first world" countries (although, looking at that list I would probably define "first world" as any value over 0.900). "Medium Human Development" nations are those with HDI values between 0.500 and 0.799, and could be classed as "second world" countries. "Low Human Development" nations are those with a HDI value of 0.499 and lower, and could be classed as "Third world" nations.

What's so great about this document is that it can actually identify which countries have been doing well over time, and which ones are going backwards. Changes in the HDI can also reflect major events in the life of that country.

China, for example, had a HDI of 0.527 in 1975 and a HDI of 0.768 today. This means that, back in 1975, China was barely out of being described as a third world nation, but today is approaching first world status.

Another interesting example is Australia. Back in 1975 Australia's HDI was 0.848 (very high for 1975). By comparison, nations today around that HDI level include Uruguay, Croatia, Latvia and Qatar. This means that people living in these four nations have the same standard of living as Australians did back in 1975. For me, who grew up as a child in the 1970s, this gives a good point of comparison.

Historical events affect the HDI as well. Here's a few I've chosen.

Rwanda
As many of us know, over 800,000 people were killed in the Rwandan Genocide in 1994. Strangely, The HDI index doesn't seem to reflect this. The 1990 HDI figure is 0.339 while the 1995 figure is 0.337 - only a slight drop in the nation's (abysmal) standard of living between 1990 and 1995, yet with a genocide occurring in between.

There are obviously statistical anomalies here. The study would have only applied to living people so the loss of 800,000 Rwandans did not overtly affect the (albeit poor) living conditions of the 6 million or so who survived. The 1994 genocide was also preceded by a civil war, which began in 1990.

But what's interesting about Rwanda's HDI figure is not the comparison between the 1990 and 1995 figures, but the 1985 figure - 0.401. What this indicates is that there was a massive drop in the standard of living between 1985 and 1990, a drop which preceded the civil war and the eventual genocide. There's no doubt in my mind that Rwanda's drop in the standard of living was at least partly responsible for the civil war and genocide that followed. What this shows is a link between civil unrest and living standards.

In 2004, Rwanda's HDI figure was 0.450. The highest it has ever been. Let's hope and pray it continues to improve.

Russia
Because of the closed nature of its politics, Russia's HDI figures only begin in 1990 where they show a HDI figure of 0.818. These stats were taken in between the period when Russia was rejecting communism and the eventual end of the USSR in December 1991. Many of us know that in those years a great deal of hardship was endured by the Russian people (as they have always done in their history unfortunately) and this is reflected in the 1995 HDI figure of 0.771. The political turmoil in those years naturally eroded people's standard of living. The HDI figure for 2000 was 0.785 and in 2004 it was 0.797, which shows that in the decade or so since 1995, life for ordinary Russians has improved, but has yet to reach the standard set in the last days of the Soviet Union.

South Africa
South Africa is a shrinking nation. According to the CIA World factbook, South Africa's population is shrinking at an annual rate of -0.46%. While the birth rate is high (17.94 births per 1000 people) the death rate is even higher (22.45 deaths per 1000 people). With people also leaving the country faster than people come in, South Africa appears to be doomed.

It was not always so. We all rejoiced when Apartheid collapsed and Nelson Mandela was elected president in 1994. Yet since then there has been a rising tide of violence and economic misery - hardly the sort of thing you'd like to see in a nation that successfully overthrew a system of government that was immoral. In fact, given the sad state of affairs, it would seem understandable for white South Africans to praise "the good old days" - after all, they had a better standard of living.

South Africa's HDI index in 1990 was 0.735, and in 1995 it was 0.741. A slight rise but a rise nonetheless. Since then it has all been downhill. In 2000 it was 0.691 and in 2004 it was 0.653. The 2004 figure is important because the 1975 figure was also 0.653. This means that the standard of living amongst South Africans has gone backwards by 30 years.

South Africa's death rate is the fifth worst in the world. South Africa also has the 5th highest AIDS rate in the world - 21.5% of the adult population. When you factor in AIDS amongst infants, it is no wonder that the HDI report shows that a South African infant has a 43.3% chance of not surviving to age 40. With death figures and infant mortality rates currently so high, South Africa's HDI index will probably continue to drop. Given the example of Rwanda above - where a drop in living standards led to political turmoil - expect to see the "New South Africa" undergo some pretty bad times ahead.

Zimbabwe
We are all concerned about Zimbabwe, especially under the infantile and destructive rule of Robert Mugabe. We've heard stories of land grabs, hyperinflation and mob violence. Things are bad. Do the HDI figures match this scenario? They sure do, but they tell more to the tale.

Robert Mugabe is undoubtedly to blame for Zimbabwe's decent into the darkness, yet he was once not so universally disliked. Mugabe was instrumental in Zimbabwe overthrowing its own form of Apartheid back in the 1970s, and was actually much like Nelson Mandela in being a freedom fighter turned president.

The impression I had was that Zimbabwe's ills really only started about 5-6 years ago when he started to turf white farmers out of their farms. But the HDI figures show much more than that.

In 1985, Zimbabwe's HDI reached a peak of 0.642. In 1990 it dropped to 0.639. In 1995 it dropped to 0.591 and in 2000 it dropped to 0.525. In 2004 it had dropped down to 0.491. Under Mugabe's reign, Zimbabwe, once one of the more respectable African nations, is now considered a third world country.

Mugabe has led Zimbabwe since 1980, first as Prime Minister and then as President. Before Mugabe, Ian Smith, a white, ruled over Rhodesia (as it was then called) from 1964-1979. Smith's government ran a similar form of apartheid to South Africa. Despite the fact that Smith and the Whites ruled unjustly, living standards did rise between 1975 and 1980.

The HDI figrues show that Zimbabwe's descent did not start in 2000, but in the early 1980s. Obviously Mugabe's desire to dismantle the social and economic infrastructure of the previous white government has led to poverty for all - whites and blacks. Once a fairly respectable developing nation, Zimbabwe has been going backwards for over 20 years.

And like South Africa, Zimbabwe has a massive AIDS problem, but without the economic resources that South Africa has. The HDI study shows that only one infant in three is likely to survive to the age of 40.

Say what you will about Apartheid, the experience of both South Africa and Zimbabwe show that racist paternalism is far better than ignorant anarchy. We in the west should be proud of our efforts to rid these two nations of their immoral governments, but we should be ashamed that our lack of fortitude and will has led these nations to a far worse fate.

The United Kingdom
Tony Blair has been in power for nearly ten years. The Labor Party, supposedly the worker's friend, has been in control since that period as well. But let's look at the historic HDI figures and compare them to the politics of the time:

Date HDI Party in control Change in HDI
1975 0.851 Conservative -
1980 0.859 Labor +0.9% +8pts
1985 0.868 Conservative +1.0% +9pts
1990 0.889 Conservative +2.4% +9pts
1995 0.927 Conservative +4.3% +38pts
2000 0.939 Labor +1.3% +12pts
2004 0.940 Labor +0.1% +1pts

The first thing to note is that Britain's standard of living has been going up for years and is one of the highest in the world. We need to remember that fact as we examine what is going on here.

The next thing to note is that the Conservative party seems to be more able to raise the standard of living than the Labor party. Note that the "party in control" is the political party responsible for the previous 5 years of statistics. Margaret Thatcher is credited with much of the turmoil which went on in early 1980s Britain with her economic reforms ("Thatchernomics"). The HDI figures show that the reforms she put in place between 1980 and 1985 had little effect at the time, but obviously led to some good results for the ten years after that.

Yet when you look at Labor - specifically the Blair government - the figures seem to stagnate. Part of the problem with this is that the HDI figures will never go above 0.999 so the higher the fgures get the harder it is to improve them (the UN may have to re-jig the entire formula in the future). Yet it is interesting that Britain's standard of living only increased by 0.001 between 2000 and 2004. What it might indicate is that economic reforms either dwindled out under Labor or had simply reached their limit. It also might indicate a growth in wealth amongst the rich while the poor are left out, which would result in higher GDP per capita figures but increasingly lower standards of living amongst ordinary people. This is where "trickle down economics" is probably trickling down from the super rich to the rich only.

Whatever the reasons for the current situation, the fact remains that economic growth did improve Britain's standard of living from 1985 to 1995, and that much of that growth did have its basis in Thatcher's Reforms. I would argue, however, that it is a combination of a gutless Blair Labor party and a failure of the "trickle down" theory begun by Thatcher that is probably to blame for the current malaise.

© 2007 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/

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This work is licensed under a Creative Commons Attribution 2.5 License.

Ireland to play tests?

Ireland's cricket team has again shown its calibre. After tying with Zimbabwe they have gone one better by defeating Pakistan and knocking them out of the competition.

Ireland now have the chance of gaining Test status - something that the ICC should consider seriously. There's no doubt that Ireland still has a way to go to produce consistently good cricketers, but there's also no doubt that the potential is there.

On the other hand, Zimbabwe has gone backwards ever since the player exodus and political problems destroyed any chance that the team has of playing competitive cricket. They should be banned from playing any form of Test cricket until there is evidence that things are improving.

The best thing that the ICC can do to develop the game in both Ireland and Zimbabwe is to pressure the ECB to relax some of its rules in choosing players. Money should be reallocated to give English counties incentive to hire cricketers from Zimbabwe and/or Ireland, and the rules about overseas cricketers from these nations should be relaxed.

A team representing Ireland should also be added to the County Cricket competition, in addition to developing grassroots competition in Ireland.