The largest Dutch bank, ABN-Amro has been snapped up by my first employer, Barclays in a fairly spectacular deal that so far appears to have outwitted another group of suitors:

ABN Amro agreed today to be acquired by Barclays for 67 billion euros, or $91 billion, creating one of the world’s largest banks in a carefully crafted deal that reduces — but does not eliminate — the chances of another suitor coming in with a higher bid to buy and break up the bank.

In a surprise facet of the deal, ABN Amro, the largest Dutch bank, said that it had arranged to sell LaSalle Bank, its attractive American business, to Bank of America for $21 billion in cash. LaSalle is the corporate gem that had drawn Royal Bank of Scotland, the British bank that teamed up with two other European banks, to mount a counter bid for ABN Amro.

It's a good deal for shareholders and from that point I regret having dumped my ABN-Amro stock a few years too early, but that is not really all that big a deal. Much more important is having made an early career call after sitting through the now infamous UBS/SBC merger in 1998/99. There will be an awful lot of bankers walking the streets of London and Amsterdam trying to re-invent themselves, not always the easiest of tasks. And this deal will probably trigger a wave of further consolidation in a sector that will continue to rationalize and spit out valuable financial and entrepreneurial talent.

Another thought provoking piece from 2006 Nobel Laureate Edmund S. Phelps in the WSJ, arguing that differences in economic dynamism are not just instititutional, but to a large extent cultural:

The values that might impact dynamism are of special interest here. Relatively few in the Big Three report that they want jobs offering opportunities for achievement (42% in France and 54% in Italy, versus an average of 73% in Canada and the U.S.); chances for initiative in the job (38% in France and 47% in Italy, as against an average of 53% in Canada and the U.S.), and even interesting work (59% in France and Italy, versus an average of 71.5% in Canada and the U.K). Relatively few are keen on taking responsibility, or freedom (57% in Germany and 58% in France as against 61% in the U.S. and 65% in Canada), and relatively few are happy about taking orders (Italy 1.03, of a possible 3.0, and Germany 1.13, as against 1.34 in Canada and 1.47 in the U.S.).

Phelps should dig further and may care to bring in religion and history as Italy, France and to some extent Germany are all Catholic and all came late to empire building as opposed to the nations that rejected papal primacy and set out to conquer the world. Max Weber was one of the first sociologists to pioneer this theme. Of course, these factors have been overcome by time and dynamic capitalism as Phelps describes it has now made successful inroads in Catholic underperformers such as Ireland and for instance Poland.

The Dutch, together with the Brits and Nordic countries are very different from their big continental brothers, but I would still suspect that their entrepreneurialism comes in below the levels measured in North America. That however is probably more a function of institutions rather than values.

Canada has reached a settlement with Maher Arar for some $10.5 million, about 9 million in US funds. Good news for Arar who will no doubt use this as ammunition to go after US authorities in order to get compensation from them and to be removed from a US security watch list.

This is the fall-out of deporting terror suspects to nations that torture and it is very instructive in how not to fight the war on Islamist terror. I've discussed this case in detail a while ago in a lengthy post about the Arar case.

On both sides of the border the debate over the minimum wage has been reignited, sparking a lively debate. In the US, Mrs. du Toit rounds up some numbers and explains the futility of a minimum wage increase. In Canada, columnist Andrew Coyne explains some fundamental economic laws:

The point is not that those struggling to get by on very low wages should be left to their own devices. The point is that wages, properly considered, are neither the instrument nor the objective of a just society. When we say their wages are “too low,” we mean in terms of what society believes is decent. But that’s not what wages are for. The point of a wage, like any other price, is to ensure every seller finds a willing buyer and vice versa, without giving rise to shortages or surpluses -- not to attempt to reflect broader social notions of what is appropriate. That's especially true when employers can always sidestep any attempt to impose a “just” wage simply by hiring fewer workers.

Read both and ask whether the usual rebuke from the other side, "you're heartless", stands the test of logic.

Not just in Europe is boomer retirement a pressing issue according to Robert Samuelson:

I know many bright, politically engaged boomers who can summon vast concern or outrage about global warming, corporate corruption, foreign policy and much more -- but somehow, their own Social Security and Medicare benefits rarely come up for criticism.

Our children will not be so blinded to this hypocrisy. We have managed to take successful programs -- Social Security and Medicare -- and turn them into huge problems by our self-centered inattention. Baby boomers seem eager to "reinvent retirement'' in all ways except those that might threaten their pocketbooks.

And that explains why some real issues - and I can list a few of my own - which not only require a change in spending priorities but a change in thinking patterns hardly get any attention from those seeking public office these days.

Virginia Postrel travels Upper Class in order to retrieve the glamour of flying, but comes up empty handed:

But I didn’t find glamour—because airline glamour was never on the planes themselves. It was in the imagination, especially the imagination of people who could only dream of flying. Airline glamour never promised anything as mundane as elbow room, much less a flat bed, a massage, or an arugula salad. It promised a better world. Service and dress reflected the more formal era, but no one expected air travel to be comfortable. It was amazing just to have hot food above the clouds.

Yes. Since I experienced the tail-end of the 'flying-is-glamourous' era I still get some sort of kick out of air travel, but it is indeed nothing compared to what it ever was.

As some of you know, my previous career revolved around financing large infrastructure and energy projects in Asia and as such I have witnessed various forms of twisting overseas investor’s arms. The most blatant example however has been more recent and it concerns the way in which the Kremlin – using environmental issues as a proxy - rewrote the terms of the Sakhalin-2 liquefied natural gas project off Russia's eastern coast. The Guardian has an instructive round-up of how the Kremlin in gaining the upper hand in its energy dealings with the west. Royal Dutch/Shell, one of the main western investors in the deal reacted as follows:

Anglo-Dutch energy multinational Shell had experienced "a great deal of difficulty" with the way Russia's Gazprom had negotiated over the Sakhalin 2 oil and gas concession in the Far East, Shell chairman Jeroen van der Veer said Sunday.

"Regarding the pressure on the environmental side, we had large difficulties. We made clear to the Russians that we did not agree," Van der Veer told Dutch national public broadcaster NOS.

The talks were "among the most difficult I have participated in," Van der Veer said.

At the end of 2006, Shell and its Japanese partners, Mitsui and Mitsubishi, yielded majority control over the huge resources to Gazprom in a deal worth 7.45 billion dollars, after pressure from the Russian environmental authorities.

Big projects in emerging economies often get off the ground fast as overseas investors get the red carpet treatment and are able to sign incredibly lucrative deals. That is exactly what happened in Yeltsin’s Russia and Shell may have been able to get in on terms that would put the recent renegotiation in a very different light. Still, heavy handed political interference sets a terrible precedent for future investment and economic development. I don’t think we needed further evidence of the roguish nature of Putin’s Russia, but Shell’s LNG project is a worthwhile addition to the list of the political and economic challenges presented by the former Soviet Union.

Dan Drezner - in the WaPo - makes an inventory of the various ideas that seek to reinvigorate US foreign policy. This excerpt in particular struck me as thought provoking:

On at least one key dimension, all the contenders for Kennan's throne agree. They all stress the importance of fostering open markets to advance economic development and U.S. power. Just one problem: As Benjamin Page and Marshall Bouton point out in "The Foreign Policy Disconnect: What Americans Want From Our Leaders but Don't Get ," the greatest gap between U.S. policy elites and the American public revolves precisely around international economic policy. As the recent midterm elections demonstrated, economic populism plays far better with Americans today than does free trade.

The grand strategy that wins out in the end may be the one that -- regardless of specific positions on Iraq or terrorism -- convinces Americans that it is possible to have free and fair trade at the same time. By a hair, then, the front-runner is Lieven and Hulsman's ethical realism. By economizing on other forms of power projection, ethical realism potentially frees up resources to cushion the domestic costs of globalization.

As Drezner concedes, markets alone are insufficient to form a viable and sustainable platform for long-term foreign policy.

Most of my analysis of Europe's problems has always been that social and moral decay are going hand in hand with the inability to address the immediate challenges posed by globalization. The recent popularity of both Europe's extreme left and right plug into this new economic alienation, witness the rejection of the draft EU constitution.

The challenge it would seem for both the American and European elites is to initiate a steady journey towards further economic liberalization at home and abroad. On the domestic side, it will equip the West to better deal with challenges coming from for instance China and India and it will at the same time forge deeper relationships with these emerging economic powerhouses. And like us, these are equally interested in quelling the disruptive forces of jihadism or resurgent collectivism in their respective backyards.

It's always a guess as to who ends up being Time's Person of the Year and almost every year the choice is both surprising and accurate. This year - it will come as no real surprise to blogreaders - it is you:

But look at 2006 through a different lens and you'll see another story, one that isn't about conflict or great men. It's a story about community and collaboration on a scale never seen before. It's about the cosmic compendium of knowledge Wikipedia and the million-channel people's network YouTube and the online metropolis MySpace. It's about the many wresting power from the few and helping one another for nothing and how that will not only change the world, but also change the way the world changes.

The tool that makes this possible is the World Wide Web. Not the Web that Tim Berners-Lee hacked together (15 years ago, according to Wikipedia) as a way for scientists to share research. It's not even the overhyped dotcom Web of the late 1990s. The new Web is a very different thing. It's a tool for bringing together the small contributions of millions of people and making them matter. Silicon Valley consultants call it Web 2.0, as if it were a new version of some old software. But it's really a revolution.

It has been in the making for a few years, but 2006 marked the end of the century of 'big'. We're now into the age of 'small', open source, do it yourself, whatever you want to call it. Whenver I get asked (or ask myself) why I keep blogging, this revolutionary trend is essentially the answer.

UPDATE: Ed Morrissey is unimpressed:

At least, however, they made a decision and selected someone. The entire point of a Person of the Year is to acknowledge that some people play larger roles in history. Naming all of us may make us feel good about our anonymity, but in the end it's either pandering to millions of readers or a refusal to take a stand on anyone. Choosing everyone is an abdication on the entire purpose of the project.

They didn't choose everyone, they picked a phenomenon that allows everyone to generate content. Looking around the blogosphere I get the impression that no matter what Time would have picked they would have received a gratuitous bashing from the 'unimpressed' crowd. More instructive is Paul Kedrosky's warning:

" ... from a financial perspective this has to mark some sort of near-term market top for user-generated content, blogs, social networks, me-media, etc "

Probably.

Putting Parents First is an excellent article from the hand of Yuval Levin and it addresses a Peaktalk core issue: the tension between capitalism and family values. And not only that, it digs deeper in arguing that this is one of the key challenges for conservatism to address now that state intervention in both the market place and the family are essentially bankrupt concepts. Here's an excerpt:

The worry of middle- and lower-middle-class families arises from a genuine tension between the two things they most eagerly strive to do: build families and build wealth. That tension, and the disquiet it causes, is especially acute for parents. Indeed, Americans in the middle class and what used to be called the working class would be better conceived of today as the parenting class. Their concerns and aspirations are no longer focused on their standing in the workplace, as they were when our political vocabulary was coming of age, but on balancing the pursuits of family and prosperity.

This is the anxiety of a successful capitalist economy filled with individuals who want to lead good lives. It is an anxiety produced by the kind of society conservatives seek to promote. It therefore calls for a response from the right, from those who share the aspiration to balance families and free markets, not those who think the system is about to collapse (and deserves to fall).

Levin argues that conservative parties thus find their challenge not in being either socially or fiscally conservative, but in mitigating the clear tension that exists between these two concepts.

It many ways this could serve as a cold shower for the unabashed free-marketeers who, like myself, have put a lot of stock in capitalism as providing unquestionable results. By taking on market deficiencies, the right will be forced to take the initiative and maintain its intellectual lead without resorting to the simple textbook of cutting taxes and rolling back government. As Levin argues, much of that has indeed been accomplished, at least in the US.

Interestingly, there is a North American conservative leader who may actually get this new approach and has already started experimenting with it in the areas of childcare and income-tax splitting. His name is Stephen Harper and his adversaries on the left have discovered that they are behind in the department of ideas:

In a press conference Tuesday, Mr. Goodale, who also serves as house leader for the Opposition, described Mr. Rae as the person to best confront the Conservative government, which he said was the “most rigidly ideological government in Canadian history”.

Yes – the mere audacity to define new ideas or a new ideological direction can land you in a most difficult spot. But there is a good reason for that as yesterday’s progressives are falling behind in defining a progressive vision for tomorrow and have in desperation turned the debate between left and right into one of "no ideas vs. ideas". At least in Canada, the conservatives are beginning to manifest themselves as today’s progressives by addressing some of Yuval Levin's points.

The markets were up today. And for a good reason:

Some investors said a divided government would prevent either party from controlling the economic agenda, clearing the way for corporate earnings and economic data to influence shares.

``A stalemate between the president and the Congress is usually a fairly bullish thing,'' said Barton Biggs, who helps manage $1.6 billion at Traxis Partners LLC in New York. ``The fundamentals are what's going to drive this market, not the political events that just happened.''

Exactly.

Following my post yesterday on how economic news can drive elections, here is the latest on that impending downturn in real estate:

Housing developers, who saw prices fall last month at the fastest rate in 36 years, are feeling it most. The Commerce Department reported that the median price for a new home sold nationally in September fell to $217,100, a drop of 9.7 percent from a year earlier, when the median price was $240,400.

While we may have seen a peak in overall US prices, any adjustments will be of a regional character. Here is a list of the nation's Top 10 foreclosure markets, and here is a list of the ten best places to buy now.

And Canada is lagging the US, which means house prices in the north are still on the rise and they are fueling an already strong economy:

Canadian consumers are looking a lot like Americans these days, borrowing against their houses to fund their substantial shopping sprees.

Personal lines of credit are surging as house prices rise, and household credit is growing at double-digit rates. But analysts say the similarities with U.S. consumers end there.

The British market in the meantime is also setting record price increases.

It's not very difficult to spin the Dow, but it will be much harder to deal with an electorate that is bruised by soaring interest rates, negative equity and foreclosures. But judging from the numbers today, that scenario will not play itself out all that soon.

A reader asks:

A lot of bloggers, like Instapundit, have been mentioning that current good economic news does not seem to be helping the Republicans. I wonder, if markets continuously discount for future events, are the markets showing a preference for a power shift to the Democrats? If so why? Are they sensing a change in War on Terror strategy would reduce costs and associated risks? A possible reversal on tax cuts is warranted? Or is the market predicting any power change in Washington DC will be over shadowed by positive earnings projections etc.

There are two things here. Firstly, despite public perception, there is not an awful lot of good economic news to speak of and secondly, I would argue that most market movements are fairly immune to possible election outcomes. But that doesn’t mean that you can’t manipulate the economic news. Note Amity Shlaes’ comments earlier today:

The politicization of economics is especially evident in the blogosphere, where supposed economic Web sites are really about economics and politics advancing the agenda of one or the other party.

It is tempting to argue that surging stock markets are evidence that sound Republican economic policies are paying off, but such claims lack any empirical basis. Yes, it is an argument propagated by the right during a challenging election cycle for them, but those commentators should bear in mind that they would also argue, correctly, that Bill Clinton was in no way responsible for the stock market boom of the 1990s.

The uptick in the Dow that we have seen over the past few weeks is largely due to the fact that US equities as an asset class have been undervalued in recent years. This, judging from my own portfolio, applies in particular to the heavyweights that constitute the Dow Jones whose recent rise everyone got so excited about. The real estate boom – to some extent influenced by Bush flooding the market with cash – and rising commodity prices have contributed to the relative underperformance of stocks. Slipping commodity prices may benefit the stock market, but any recent gains are sure to be wiped out if the expected downturn in real estate materializes. Neither the Republicans, nor the Democrats will have any material influence on these developments which to a large extent are driven by global market movements. For now I would prefer to keep my eyes on Ben Bernanke, rather than rely on short-term market movements and a set of desperate politicians trying to interpret them to their advantage.

In what may be a first, Germany has decided to start charging a licence fee for using the internet to access TV and radio programmes. And that relates to internet access only, what logically follows is that governments will eventually want to have a chunk of the ever increasing amounts of real cash that change hands in online virtual worlds. Let's see what revenue hungry country moves in first.

Here is an area where the EU is clearly failing to promote competition: taxes.

Consider this:

The CNV trade union federation feels that a Muslim feast should be introduced as a bank holiday in the Netherlands. The Christian trade union federation is willing to sacrifice a Christian holiday.

This is by no means a new idea; in fact former Labor leader Ad Melkert floated it during the turbulent campaign of 2002, the one which eventually doomed his political career. It is not exactly a surprise to see it back now that the immigration debate has taken on a very different tone compared to four years ago.

So here is what I think. There is no problem in sacrificing a few Christian holidays at all, in fact this is one of the better ideas we’ve heard in a long time. But rather than replace them with Muslim holidays I would suggest replacing them with actual working days. Now that will run into some real and serious opposition in The Netherlands.

What America's social conservatives have done to U.K. gaming companies, and Russia's siloviki are doing to international oil companies, E.U. protectionists are trying to do to American farmers.

According to Irwin Stelzer who argues that despite globalization, many barriers to free trade continue to be erected all over the world. Not all of his logic is sound - there is a difference between extra-territorial legislation and using domestic law to curb certain economic activity at home - but his basic point about the increasing complexity of economic interdependence stands.

Fascinating piece from the 2006 Nobel Prize winner for economics, Edmund Phelps which among other things touches on the fundamental differences between capitalism in the US, UK and Canada on the one hand and Western Europe on the other. The key focus is on dynamism and innovation and I loved this bit in particular:

I must mention a "derived" benefit from dynamism that flows from its effects on productivity and self-realization. A more innovative economy tends to devote more resources to investing of all kinds--in new employees and customers as well as new office and factory space. And although this may come about through a shift of resources from the consumer-goods sector, it also comes through the recruitment of new participants to the labor force. Also, the resulting increase of employee-engagement serves to lower quit rates and, hence, to make possible a reduction of the "natural" unemployment rate. Thus, high dynamism tends to bring a pervasive prosperity to the economy on top of the productivity advances and all the self-realization going on. True, that may not be pronounced every month or year. Just as the creative artist does not create all the time, but rather in episodes and breaks, so the dynamic economy has heightened high-frequency volatility and may go through wide swings. Perhaps this volatility is not only normal but also productive from the point of view of creativity and, ultimately, achievement.

Remember that the next time we're in a downturn.

Europeans actually prefer to work longer than most governments and unions think is good for them, according to this TCS column. It surprises me, but maybe the average European worker is more astute than those that claim to represent them. The choice between working longer hours and not working at all is increasingly an obvious one. Again, global competitive pressures and the influx of more than just plumbers from Poland will materially change the way Europeans work. Let’s see if the regulators in Brussels are able to keep up with that reality.

Well, I am not the only one who has figured out that business air travel is slated for some major disruption in the form of open source air travel or by simply staying at home and conduct meetings from a safe and convenient distance. Paul Kedrosky and Seth Godin argue that air travel has indeed reached a tipping point.

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David Frum is not very happy either and labels the increased security measures around airports as perverse, as indeed they are. Of course, he has considered a solution:

Another approach: Perhaps if you fly often from New York to London, you might be willing to volunteer a whole mass of information to British Airways in return for a "trusted traveller" card that will allow you to walk on the plane with minimal fuss. Your name might be Omar Abdullah, but if they know that you are 57 years old, director of the Middle East collection at the Metropolitan Museum, own an apartment in Manhattan and a brokerage account at Merrill Lynch, carry a Visa card with a $50,000 limit, fly to London six times a year with tickets paid for by the museum, and so on and so on ... well, they can pretty confidently let you on the plane with minimal formalities.

Nice idea, but it only addresses a part of the problem and I can already picture the abuse and the rapid proliferation of forged “trusted traveler” cards. In the meantime, innovation in the airline industry proceeds swiftly, here is an example of one that has venture finance backing and this one in particular appears to be addressing the affordability aspect:

The Eclipse 500™ is the revolutionary twin-engine jet that's making private jet ownership a reality for more people than ever before. Through innovative technology, modern manufacturing techniques, and pricing models aligned with the high-tech industry, the Eclipse 500 is the lowest price very light jet (VLJ) available, yet features more performance, lower operating costs and the most advanced avionics and electrical system in its class. If owning a jet has been your dream, wake up and smell the jet fuel.

For a mere $1.5 million it's yours, no kidding.

Well, the increased security measures are starting to border on the ridiculous, the notion of having to check in your laptop and even the thought of going transcontinental without a book is just absurd. As I mentioned yesterday we adapt and improve, and we will, but it may well be that in the age of open source there is now a good chance of a fundamental restructure of business travel where the use of small jets or shared leases by a group of companies has good potential to replace the ubiquitous struggle to get on a big ticket commercial airliner.

Business travel has always been somewhat over the top in my opinion, I recall a Hong Kong to Washington, DC, flight where I had to attend a morning meeting that could well have been conducted by way of a conference call. The trip had entertainment value as I got to spent an extra day taking in the DC sights, but the cost-benefit ratio was totally off the charts. And that was in 1999, now with even better, faster and cheaper communication tools at hand there is a compelling argument to improve the bottom line by reducing corporate trips. And post-jihad travel will probably add another signifcant cost by adding longer waiting times at check-in and reducing efficiency if you can no longer use your laptop in the cabin. Not to mention that other cost-benefit analysis where the upside of closing a new deal will have to be weighed against the probability of being blown to smithereens by the jihadist sitting next to you in 5C.

In all seriousness, in an age where we move to smaller, independent and often non-corporate solutions – there’s a guy who wrote a book about that - we may well enter an age where small private jets will no longer be the provenance of the rich and famous. Creative financiers and risk takers will no doubt find a model whereby business travel can increasingly be channeled through small operators that operate light jets and who can offer their clients tailored flight plans. Too bad that Airbus failed to figure that out:

NOTE: Innovation is not something we're going to get out of large airline companies. But rather than confiscating books, cellphones and bottled water they may want to give it a try and consider alternative approaches:

Rafi Ron, former head of security at Tel Aviv, Israel's Ben Gurion Airport, said screeners should focus more on finding suspicious people than on hunting for potential terrorist tools.

"It is extremely difficult for people to disguise the fact they are under tremendous amount of stress, that they are going to kill themselves and a lot of people around them in a short amount of time, and all the other factors that effect their behavior," Ron said.

Makes sense, doesn't it?

In the past I have touched on General Motors and the drain that its many liabilities have on its overall competitiveness. One of my investment friends forwarded me this interesting piece, As GM Goes, So Goes the Nation by Bill Gross, which argues that GM is just a harbinger of things to come. It’s up to you to think about an asset shift, but Gross makes the compelling point that given the choice would you buy a car at a premium to fund someone else’s healthcare and pension plan? Or do you buy an equally solid but cheaper vehicle, made in Asia? If you think this has serious implications for the US, think about how ugly things are going to be in Europe when sustained emerging market strength will wipe out its manufacturing sector.

Last Friday Warren Buffett's Berkshire-Hathaway announced a major acquisition, but it was one of my readers who alerted me to the fact that it was one in Israel, and, Buffett's first outside the US. Of course, we can intepret the 80% purchase of family-owned Iscar as a vote of confidence at a critical juncture:

"This is a moment for Israel's economic standing and ability when a global investor guru such as Warren Buffett decides to make this crucial investment in Israel following the rise of the Hamas government," Shlomo Maoz, chief economist at Excellence Nessuah, told The Jerusalem Post. "It represents a high vote of confidence which will boost Israel's status in the world and attract other foreign investors to follow Buffett's lead."

The Tel Aviv 100 Index rose to record levels today. Good news, sure, but if I were living in Israel I would look very closely at how the Wertheimer family will re-invest the 4 billion they have just pocketed. That will be the real confidence test for Israel's economy.

In his TCS-column Lee Harris finds an answer to a question which has bothered me for quite a while and that is Why Isn't Socialism Dead? Key excerpt:

Thus, in the coming century, those who are advocates of capitalism may well find themselves confronted with "a myth gap." Those who, like Chavez, Morales, and Castro, are preaching the old time religion of socialism may well be able to tap into something deeper and more primordial than mere reason and argument, while those who advocate the more rational path of capitalism may find that they have few listeners among those they most need to reach -- namely, the People. Worse, in a populist democracy, the People have historically demonstrated a knack of picking as their leaders those know the best and most efficient way to by-pass their reason -- demagogues who can reach deep down to their primordial and, alas, often utterly irrational instincts. This, after all, has been the genius of every great populist leader of the past, as it is proving to be the genius of those populist leaders who are now springing up around the world, from Bolivia to Iran.

From socialism to jihadism - perish the thought that they join forces - the hard battle is again the one of reason against the one of irrational myths. Sorry for wrecking your Sunday, but it seems to me that this century may be as bloody as the last one.

If your professor is a noted conservative, but if you still can't figure out where he stands on Marxism then you are probably being taught by an unbiased giant. Thomas Sowell was interviewed by OpinonJournal this weekend and I thought this excerpt in particular was interesting:

"The left likes to portray a group as sort of a creature of surrounding society. But that's not true. For example, back during the immigrant era, you had neighborhoods on the Lower East Side [of Manhattan] where Jews and Italians arrived at virtually identical times. Lived in the same neighborhoods. Kids sat side by side in the same schools. But totally different outcomes. Now, if you look back at the history of the Jews and the history of the Italians you can see why that would be. In the early 19th century, Russian officials report that even the poorest Jews find some way to get some books in their home, even though they're living in a society where over 90% of the people are illiterate.

"Conversely, in southern Italy, which is where most Italian-Americans originated, when they put in compulsory school-attendance laws, there were riots. There were schoolhouses burning down. So now you take these two kids and sit them side by side in a school. If you believe that environment means the immediate surroundings, they're in the same environment. But if you believe environment includes this cultural pattern that goes back centuries before they were born, then no, they're not in the same environment. They don't come into that school building with the same mindset. And they don't get the same results."

An OECD-report suggests that Europe is falling behind in terms of skills and education when compared to Asia. Although this is not a surprising revelation, it is interesting to note that the report defines "class" as one of the more serious barriers to climbing the social ladder, particularly in France and Germany.

Failed integration policies and an ingrained but false sense of entitlement will generate a bill of incompetence, presented by Asia's eager and entrepreneurial masses. And, I suspect, some dynamic Eastern Europeans will form part of the new competition as well.

I stunned some co-workers at lunch a year or so ago when I mentioned that I didn't buy Fair Trade coffee because I thought it was really an anti-globalist movement to promote communism in impoverished countries. My reasoning was the Fair Trade movements insistence on dealing only with co-operatives. I may have slightly exaggerated my position because those old co-workers were pretty fun to shock. But I didn't over state it by much, as Kerry Howley explains in Reason.

"“It’s like outlawing private enterprise,” says former SCAA chair Cox, who now serves as president of a coffee consulting company. “What about a medium-sized family-owned farm that’s doing great, treats their employees great? Sorry, they don’t qualify.” In Africa, many coffee farms are organized along tribal, not democratic lines. They’re not eligible either, a problem that has prompted some roasters to charge cultural imperialism."

But of course, programs like Fair Trade are far more about how a consumer feels than any objective benefit. And for making coffee drinkers feel better about themselves, Fair Trade has been a roaring success.

Although most of the people I work with carry the damn thing, I personally have no use at all for a Blackberry. The laptop and cell phone give me sufficient access to the world and, quite frankly, I really don’t need to improve people’s access to me. Given the choice I’d rather reduce it.

Anyway, that doesn’t mean I haven’t been following the Blackberry patent infringement case which is quite interesting and Dan Morgan argues why in the wake of this affair the US will need some patent reform. He may be right about that although I will argue that a reduced ability to patent new ideas will adversely affect investment in new technologies.

It's like going into Hollywood and argue against the merits of producing entertainment. Hong Kongers are perplexed:

Shouts of "People before profit," "No tariff cuts" and "Down with the WTO" echo through the city that prides itself on being one of the world's major financial centers and a poster child for laissez-faire capitalism.

"Most people in Hong Kong don't understand what they (the anti-free trade protesters) are doing. This is not in their culture. They like free trade," said K.K. Cheung, a 68-year-old retired construction engineer.

Money, trade, markets. It built Hong Kong. It's the lifeblood of Hong Kong.

NOTE: Others blogging the WTO event in Hong Kong are Flagrant Harbour and Freedom to Trade.

Hong Kong has seen many demonstrations, before and after the handover to China, but they have never been violent. That record will be tarnished this week when the anti-globalization movement makes its move on the WTO conference which is taking place in the territory this week. Some initial skirmishes took place today, but there were also other, more creative forms of protest:

Earlier, police intercepted dozens of South Korean farmers who jumped into Victoria Harbor and tried to swim a few hundred yards along the coast to the WTO venue. Two of the swimmers became ill in the cold water and were briefly hospitalized, police said.

Take it from me, you don't get ill because Victoria Harbour is cold: it's probably the most polluted piece of water on the planet.

NOTE: Dan Drezner is in Hong kong covering the conference and of course, Simon has lots of updates and links.

Whenever I lamented the power of unions in the past, readers would point to the imminent demise of America's once thriving car industry. The basic argument was, why pay extra for an average car in order to fund someone else’s healthcare and pension plan when there are far better alternatives (read Asian) on the market? Today, that particular train of thought was given further momentum when GM announced a massive job cut and factory closures. But even that may be too little to stop the bleeding as the Economist argues in a fairly depressing editorial on the issue:

Consumers will worry about warranties and the resale value of cars. What is clear is that GM’s options are steadily diminishing and its still sizeable financial resources are being drained away at a frightening rate. At the current pace, it may not have the momentum to reach a safe port.

For better or worse, this is globalization at work. Better adapt to it.

The actual number for fiscal 2005 is 2.6% and not the 4.1% that was quoted here before. Thanks to my readers for pointing out that the number from the Economist that I used earlier was not correct. However, it seems that the Economist uses forward looking numbers and this is their latest projection:

Given the lack of political will to cut discretionary spending and increase taxes, the White House and Congress will find it near-impossible to offset the cost of the Gulf Coast reconstruction effort. Federal finances, therefore, will remain weak, with the deficit expected to reach 3.9% of GDP in 2005/06.

What cronyism? It seems our corner store owner from Dallas, a strong favorite for the job, lost out to Ben Bernanke. He's got a impressive resume.

UPDATE: Marginal Revelution has lots on Bernanke, keep scrolling.

America’s poor are back in the news, earlier this month US census numbers reported an increase in the overall poverty rate and the fall-out from Katrina delivered some fresh imagery of life at the bottom of the socio-economic ladder. Dan Morgan sums it up and is right in pointing out that welfare hand-outs failed to work but also that welfare reform has not done enough to eradicate poverty, especially among America’s black population. While there’s no easy answer, it’s evident that we need to look beyond simple “more cash, less cash” solutions. Bill Cosby last year initiated this discussion by pointing to the responsibility of the poor themselves to lift themselves out of their misery and emphasized the crucial role of parents in raising responsible citizens that are able to undertake that journey. That was controversial stuff considering that the victim-culture had permeated this issue for generations and prevented the creative use of the concept of “self-help” in solving poverty issues.

But there’s ample evidence that poverty and ethnicity are not inextricably linked. Asians, Hispanics and many African-Americans as well as poor immigrants of different backgrounds have often successfully worked their way up from the bottom of the ladder. Now that we’ve walked through welfare and welfare-reform it’s time for cultural change and that usually takes longer to take effect than providing and withholding monetary help.

NOTE I: The Sunday Times has some comments on this issue today too in a piece called America's Underbelly. And read this commentary on Booker Rising too.

NOTE II: Of course the debate over poverty is always dependent on how you define the term itself, the Heritage Foundation last year argued the following:

The typical American defined as "poor" by the government has a car, air conditioning, a refrigerator, a stove, a clothes washer and dryer, and a microwave. He has two color televisions, cable or satellite TV reception, a VCR or DVD player, and a stereo. He is able to obtain medical care. His home is in good repair and is not overcrowded. By his own report, his family is not hungry and he had sufficient funds in the past year to meet his family's essential needs. While this individual's life is not opulent, it is equally far from the popular images of dire poverty conveyed by the press, liberal activists, and politicians.

But the living conditions of the average poor person should not be taken to mean that all poor Americans live without hardship. There is a wide range of living conditions among the poor. Roughly a third of poor households do face material hardships such as overcrowding, intermittent food shortages, or difficulty obtaining medical care. However, even these households would be judged to have high living standards in comparison to most other people in the world.

Conservatives - while never explicitly arguing for poverty – often point to labor market flexibility as an essential ingredient for a thriving free market. A poor underclass ensures a steady supply of cheap labor which in turn enhances the competitiveness of any economy. This is true and up to a point it is a justifiable argument in reducing welfare if it can be demonstrated that migration out of that underbelly is a realistically achievable option for the poor that constitute it. In pure free market economies such as the US and Hong Kong, that mechanism works, but only partially. The road out of poverty remains challenging but at least we have started to look at alternative options, unhindered by politically correct dogma

Earlier today it was reported that US Consumer Confidence is up:

Consumers reassured by the strengthening job market stayed optimistic in August despite the surging price of gasoline, giving a widely followed measure of consumer confidence an unexpected boost. The Conference Board said Tuesday its Consumer Confidence Index, compiled from a survey of U.S. households, rose to 105.6 this month up from a revised 103.6 in July. The August figure was better than the 101 analysts expected.

There are distinct signs however that the appetite of the US consumer to continue to spend is running out, according to the excellent Big Picture market blog. Growth in the US and a number of other mature Western economies has been sustained largely by consumers using their home equity as a cash dispenser. That model is only sustainable for so long and now that Greenspan's comments have formally heralded the end of the housing boom, it's time to prepare for some real caution in spending behaviour. And if you're not convinced about that, just take a look at the S&P Retail Index. It has peaked.

In Germany and Britain. It requires a lot of changes on the political scene, but it appears there's at least a little bit of momentum.

IT'S ALL ABOUT RISK

Some fifteen years ago I walked into a London office as a young banking trainee and my first boss, one of these seasoned and arrogant investment bankers, gave me only a few moments of his expensive time to tell me: “It’s all about one thing, risk”.

And how right he was. My journey across the globe was in essence a quest to strike the right balance between risk and reward, each time hoping a new equilibrium could help me move forward. Playing safe when you need to, roll the dice when you think you can. From the relative safety of investment banking to working with promising early stage companies, each time trying to find the right balance.

Capitalism in itself is a long historic journey where the participants always had to manage risk during their pursuit of wealth. From that perspective we're no different from the Dutch who settled Manhattan in the 17th century, only today the boundaries are no longer geographical. But the tools we use today to manage uncertainty are no different: sales techniques, legal documents, currency hedging, technology, insurance; they all have been around for ages.

This week I am proud to host a group of contributors who will update you on the state of affairs in their area of expertise. Each of them has assumed a measure of risk and is able to talk about an aspect of it. Marketing, sales, law, technology, entrepreneurship, it’s all capitalism, and it’s all about risk.

GENERAL BUSINESS

There's nothing like the confluence of politics and markets. Political Calculations has spent some time looking at Air America's viability as a business. Read it and draw your conclusions.

Craig at Lead and Gold argues that strategy may be more important to business than to a military general.

Now that we have 'budget airlines' and 'budget phones' says Interim Thoughts, are we witnessing the emergence of a parallel budget economy?

Pitiful is the capitalist who submits to the stupidity of others without a fight, says Goobage.

Coyoteblog looks at the recent economics study by a couple of business school professors and draws some conclusions about trading strategy and the NFL draft.

FINANCE, INVESTING AND COMMODITIES

Want to mitigate your risk when investing in media companies? To help you, The Media Stock Blog has