Economics

One way to make sense of the present financial chaos is to look back at the past

THE typical career of a Wall Street banker lasts about a quarter of a century, enough to span just one big financial crisis. As Niall Ferguson explains in his new book, “The Ascent of Money”, which will be published next month, today’s senior financiers would have started out in 1983, fully ten years after oil and gold prices first began the surge that had ruined the previous generation of money men. That, he concludes, is a “powerful justification for the study of financial history.”

Mr Ferguson is right. The world needs a book that puts today’s crisis into context. It is too late now to warn investors about expensive houses and financiers about cheap credit. But perhaps the past can help make sense of the wreckage of banks, brokers and hedge funds that litters the markets. Looking back may help suggest what to do next. And when the crisis is over and it is time for the great reckoning, the lessons of history should inform the arguments about what must change. ...

And how Russia could do the same thing today

RADIO created the Third Reich’s ethnic battering ram: the Sudeten Germans, stranded in Czechoslovakia under the Versailles treaty. As David Vaughan recounts in his meticulous and poignant study of the war on the airwaves, Czechoslovakia’s own German-language programmes were hopelessly outgunned by the quantity, quality and audibility of the Nazi propaganda effort. Patriotic Czechoslovak journalists argued that it was the national radio’s job to broadcast in the national language: if their fellow-citizens wanted to hear programmes in German, they could tune in elsewhere. They did.

What Prague did offer was sometimes magnificently erudite (Thomas Mann, the exiled German literary giant, was a contributor) but had little appeal to skint, resentful German-speaking workers: they were easy prey for made-up stories of atrocities, discrimination, and conspiracies. That forged the crucial link in the Nazi argument: that ethnic Germans, around a quarter of Czechoslovakia’s population, wanted—and deserved—to join the Reich. ...

Celebrating an outlaw and rescuing his protector

HIS lover and fellow poet Paul Verlaine called him an “angel in exile”. It was a perception that few others shared. When Arthur Rimbaud arrived in Paris in 1871, 16 years old, filthy and unknown but clutching a draft of his first masterpiece, he quickly began making enemies. Those who offered the runaway bumpkin hospitality regretted it. One host was rewarded with a glass of milk spiked with a fresh helping of Rimbaud’s semen. The little charmer addressed established literary figures as “cunty” or “ink-shitter”. Stabbing those who annoyed him soon became a reflex.

What Rimbaud lacked in social skills, however, he made up for in sheer outrageous genius. In a poetic career that lasted barely five years he produced some of the most audacious, beautiful and influential poetry of the 19th century—arguably of any century. For Edmund White the Frenchman is nothing less than “the father of modern poetry”. ...

The men who made cubism

RARE is the event that pushes the financial crisis off the front pages. But “Picasso et les Maitres”—a visual conversation between the cubist master and the great painters that shaped him—claims that honour.

Ten rooms are devoted to ten themes at the Grand Palais, where the bulk of the exhibition is displayed: self-portraits, colours, still-lifes, variations, portraits, nudes. In each room, works by Picasso join those of the masters he cannibalised. Some 210 masterpieces—by El Greco, Goya, Ingres, Manet, Poussin, Rembrandt, Renoir, Van Gogh, Velazquez and others—have been gathered from collections the world over. ...

An Expressionist master revealed

THE Grand Palais is home to two major exhibitions this winter—the painters who influenced Pablo Picasso (see article) and a retrospective of the work of Emil Nolde, one of the finest German Expressionists. The Nolde show is a revelation, even for connoisseurs.

Nolde, who died in 1956, is not a household name. Before the second world war, it was commonly believed that the best art came from France. Afterwards, Hitler’s enemies were slow to reappraise the German masters they had missed. The first Nolde retrospective in New York was only in 1963; in London in 1995. This is France’s first. ...

Saving the world, one toilet at a time

DEATH, once referred to in euphemisms, if at all, has been reborn as prime-time television drama. Sex and money are now topics for documentaries, even after-dinner conversation. The last taboo, surely, is shit. The byproducts of digestion are so hard to mention—adolescent jokes aside—that symptoms of bowel cancer are often ignored until it is too late.

But as Rose George explains in this fascinating and eloquent book, there is a great deal that needs to be said about excretion that is not remotely funny. Two-fifths of the world’s population has nowhere to defecate except open ground. That is 2.6 billion people whose drinking water contains their and their neighbour’s faeces; whose food is contaminated by the flies that lay their eggs in human waste; who live in filth and very often die because of it. And yet this particular curse of poverty is all too often overlooked. Politicians and celebrities are enamoured of “clean water”—but less keen on posing next to the latrines that must be built to keep water that way. ...

A country's history as fabulous jumble-sale

THERE is little point in picking up a book by Simon Schama and expecting conventional history. And this latest work by the prolific and increasingly televisual Columbia University professor is no counterexample. It divides itself into four large sections, each dealing with a different thread that the author discerns running through the fabric of America’s evolution. But within each section, Mr Schama darts about like a mad thing, flipping from receptions at Downing Street to Mexican-ruled Texas, from Barack Obama’s victory in Iowa’s caucus last January to the bitterest fields of the civil war. There is no point in complaining about this, no matter how deranged it might make the reader feel: it is just the way that Mr Schama does things. As such, it has its own particular charm.

There is nothing uniquely American, of course, in the notion that the past inhabits the present. William Faulkner was speaking of the American South when he said that the “past is not dead. In fact, it’s not even past”. But one could say the same of very many places, perhaps of all countries. What may be uniquely American, though, is the choice of themes that America brings to mind. Mr Schama’s list is the list of exceptionalisms that most people would probably draw up when contemplating this vast and extraordinary continent: its military might, its religious fervour, its immigration-shaped ethnic variety, its staggering abundance. ...

SIR – Your leader on the banking crisis claims that the costs of the government bail-out and associated moral hazard “seem small against the benefit of putting a floor under the markets” (“I want your money”, September 27th). This is arguable, but probably correct. Yet in the very next leader you bemoan caps on bank executives’ pay because “companies and shareholders are better at setting salaries than bureaucrats” (“Questions of equity”, September 27th). It is hard to disagree with that, even if recent events make me question this wisdom. However, your priorities are backwards. Distortions resulting from erroneous salary caps are small compared with the long-term effects of moral hazard. Today it might even be argued that chasing the “talent” away from the financial sector yields a net benefit.

Dale LehmanProfessor of economicsAlaska Pacific UniversityAnchorage ...

Despite the persistence of Africa’s natural and man-made horrors, the latest trend is cheeringly positive

UNTIL the past few weeks of global turmoil, Africa’s doughty band of boosters were feeling they at last had something to smile about. After four decades of political and economic stagnation that kept most of their 800m-odd people in poverty and gloom, the continent’s 48 sub-Saharan countries have been growing for the past five years at a perky overall rate of 5% or so. If they maintain this pace or even bump it up a bit, Africa still has a chance of taking off. Now, with commodity prices likely to fall, world markets sure to shrivel and Western aid set to plateau or even dip, Africa, though more isolated from the global economy than other parts of the world, is bound to suffer from its ill breeze. But maybe not as badly. Once described by this newspaper, perhaps with undue harshness, as “the hopeless continent”, it could yet confound its legion of gloomsters and show that its oft-heralded renaissance is not just another false dawn prompted by the passing windfall of booming commodity prices, but the start of something solid and sustainable. Despite its manifold and persistent problems of lousy governments and erratic climates (see article), Africa has a chance of rising.

Pessimists have plenty of evidence to call on. There have been spurts of growth before, especially when commodity prices have risen sharply. But when those prices have fallen, growth has fizzled. Africa’s few recent successes tend to be set against a previous history of disaster. Ghana, for instance, is often cited as one of the most hopeful cases, but at independence in 1957 it was nearly as well off as South Korea; now, despite its recent bounce, it is still some 30 times poorer in wealth per person. The lively growth in several other hopeful spots—for instance, Mozambique, Rwanda and Uganda—must likewise be set against the horrors of their quite recent past. In fact, the sole country in Africa with a record of consistently strong political and economic progress is Botswana. ...

At last a glimmer of hope, but more boldness is needed to avert a global economic catastrophe

CONFIDENCE is everything in finance. Until this week the politicians trying to tackle the credit crunch had done little to restore this essential ingredient. In America Congress dithered over the Bush administration’s $700 billion bail-out plan. In Europe governments have casually played beggar-my-neighbour politics, with countries launching deposit-guarantee schemes that destabilise banks elsewhere. This week, however, saw the first glimmers of a comprehensive global answer to the confidence gap.

One clear sign was an unprecedented co-ordinated interest-rate cut on October 8th by the world’s main central banks, including the Federal Reserve, the European Central Bank, the Bank of England and (officially a coincidence) the People’s Bank of China. Various continental European countries also set about recapitalising their banks. But the most astounding developments were in America and Britain. The Fed doubled the amount of money available to banks on a short-term basis to $900 billion and announced that it would buy unsecured commercial paper directly from corporate borrowers. More surprisingly, Gordon Brown’s government, hitherto the ditherer par excellence, produced the first systemic plan for dealing with the crisis, not just providing capital and short-term loans to banks but also offering to guarantee new debt for up to three years (see article). ...

Why Stephen Harper does not deserve to be dumped

IT IS not easy to be a successful Conservative in Canada. Perhaps it is the effect of living next to the United States. Perhaps it is because the country was founded on the collectivist principles of “peace, order and good government” rather than the individualist “life, liberty and the pursuit of happiness” of its neighbour. Perhaps it is because the things that Canadians most value about their country are its publicly run health service, its European-style welfare state and its tolerance. All are associated with the Liberals, who have been the natural party of government in Canada for the past century. To cap it all, conservative ideas of deregulation and unfettered free-market capitalism have been brought into disrepute by the financial turmoil south of the border.

So perhaps it is not surprising that the hopes of Stephen Harper, Canada’s Conservative prime minister, of endowing his minority government with a parliamentary majority at a general election on October 14th may end up being dashed. At first his decision to call the election looked shrewd, as the Conservatives raced to a lead of 15 percentage points in the opinion polls. Then the Wall Street panic got going. Canadians began to worry that Mr Harper was not doing enough to protect them. His poll lead has been cut by almost half. Unless he bucks the trend he could even lose power. ...

How discredited technologies can be unexpectedly resurrected

IT BECAME a classic example of a techno-Utopian prophecy gone awry. The notion of the “paperless office”, which dates back to the 1960s, sounded plausible enough. As computers began to spread and display technology improved, it seemed obvious that more and more documents would be written, distributed and read in electronic form, rather than on paper. Filing cabinets would give way to hard disks, memos and reports would be distributed electronically and paper invoices and purchase orders would be replaced by electronic messages whizzing between accounts departments.

What actually happened was that global consumption of office paper more than doubled in the last two decades of the 20th century, as digital technology made printing cheaper and easier than ever before. Not even the rise of the internet stemmed the tide. The web’s billions of pages provided a vast new source of fodder for the world’s humming printers. Although e-mail did away with much paper-based correspondence, some older, technophobic bosses insisted on having their e-mails printed out so they could scribble their responses in pen for their secretaries to type in and send off. ...

A state that dislikes change may contemplate it after all

AT MIDDAY in downtown Indianapolis, Kathy Vari leads 50 schoolchildren out of the City-County Building, each wearing a sticker reading “I voted”. It is the first day of early voting in Indiana, and students from the elementary school in Lawrence Township—a political battleground on the suburban fringe—are on a field trip to see the newly opened polling place. They even fill out ballots. The results? Twenty five vote for John McCain, 25 for Barack Obama. That, says Ms Vari, is about what it feels like in Indiana these days.

To many Americans, Indiana conjures up images of corner churches, high-school basketball and endless fields of maize. It is whiter, a bit less educated and slightly poorer than America at large, and perhaps most famous for the Indianapolis 500, a huge car race. “They don’t like change very much” in Indiana, explains John Hurt, a resident of Martinsville, a small town south-west of Indianapolis lobbying to get a proposed interstate highway diverted away from its shuttered main street. ...

They are unpredictable and often unfair. But there is no better test of a candidate

AT FIRST, Richard Nixon vowed he would not debate John Kennedy. He had little to gain from such an encounter, and much to lose. As vice-president, he was better known than the young senator and universally considered a heavyweight. But in the end his fear of appearing fearful overcame his caution. It was a mistake. The camera is unkind to men who look shifty.

At the first debate in 1960, Nixon was not feeling well. After hearing Kennedy turn down the offer of make-up, he turned it down too, though it might have covered his five o’clock shadow. Kennedy got his aides to apply make-up when Nixon wasn’t looking, and presented a tanned and handsome face to the nation. Nixon looked like a sweaty corpse. Radio listeners thought he did well. But on television, Kennedy won by a mile. ...

As the economy sags, Barack Obama’s electoral prospects soar

IN A small town in Pennsylvania, where the liquor store is called “Beer World”, the mini-golf course has a Statue of Liberty hole and a sign boasts that this is the “21st best town in the US”, Barack Obama is making a speech. The latest unemployment statistics have just been released, and they are grim. It is the day after the vice-presidential debate, during which Sarah Palin accused the Democrats of wanting to impose job-killing tax hikes on business.

“Just since January, we’ve lost more than 750,000 jobs across America, 7,000 in Pennsylvania alone,” says Mr Obama. “So when Senator [John] McCain and his running-mate talk about job-killing, that’s something they know a thing or two about. Because the policies they’re supporting are killing jobs every single day.” ...

Why Arizonans aren’t as keen as they might be on John McCain

IN A Paradise Valley shopping mall, Martin Dunleavy takes a break from the scorching Arizona sun. He is wearing a cap emblazoned with an eagle and an American flag, and describes himself as somewhat conservative. He adores Sarah Palin, whom he describes as “every man’s woman”. How about John McCain, Arizona ’s senior senator and the state’s first plausible presidential candidate since Barry Goldwater in 1964? Mr Dunleavy shakes his head: “You just can’t trust McCain.”

Nobody besides a few excitable Democrats believes John McCain will lose Arizona. Presidential candidates nearly always carry their home states. But Mr McCain is less popular at home than one might expect. On February 5th he won less than half of the vote in Arizona’s Republican primary. A state poll conducted two weeks ago put him seven points ahead of Barack Obama. It is hardly an overwhelming lead in a state that has voted for a Democratic president only once since 1948. ...

The bail-out law brings more oversight of the Fed and the financial system

THE 451-page bail-out bill passed by Congress on October 3rd contained reams of extraneous stuff, ranging from $150 billion in tax breaks to increased insurance cover for mental illness. No surprise there. It also includes two little-noticed provisions that portend closer oversight of the financial system and of its single biggest player, the Federal Reserve.

The law orders up two reports on regulatory overhaul. The first, by a congressional panel created to monitor exactly how the Treasury is to spend up to $700 billion on mortgage assets and stakes in financial companies, is due by January 20th 2009, the date of the next president’s inauguration. The second, to be written by the next treasury secretary, is due on April 30th. ...

The Democrat’s most vulnerable point is also his strongest base

“BARACK OBAMA, born of the corrupt Chicago political machine”, begins a sinister voice in a McCain advertisement. Among the Democrat’s “friends from Chicago”, Sarah Palin tells crowds, is a former violent radical, William Ayers. Mrs Palin also says that Republicans should highlight another Chicagoan, Mr Obama’s divisive former pastor, Jeremiah Wright. Chicago, for better or worse, is a principal part of the McCain campaign’s effort to bring Mr Obama down.

Chicago itself remains the centre of efforts to lift him up. This is not just because nomadic campaign staffers have claimed every sofa in the city. Most Chicagoans love Mr Obama. Linda Randle, one of his biggest fans, met him in 1986 when she was living in public housing and he was a young organiser. Today she owns more than 20 Obama T-shirts and has campaign signs taped to her windows. “I always thought he was going to be the greatest civil-rights lawyer,” she says, “but I don’t have a problem with him being president.” ...

The state’s finances are worsening by the day

TWO weeks ago Arnold Schwarzenegger, California’s governor, signed a state budget that was a record 85 days late. Much cajoling and bullying was required to get it to his desk. At one point the governor threatened to pay state bureaucrats the minimum wage; at another he promised to veto every bill he saw. Few like the end result, which involves spending cuts and a good deal of what John Chiang, the state controller, described as “Enron-style accounting tricks”. And yet it became clear this week that the budget is hopelessly optimistic and will almost certainly have to be renegotiated.

The world’s eighth biggest economy has two problems, both stemming from the economic downturn. First, it is finding it hard to raise enough money to pay the bills. Under normal circumstances the state would sell $7 billion in bonds to tide it through until April, when income taxes flood in. Thanks in part to the delayed budget, the state has been forced to go to the bond markets at a time when investors are wary of everything but Treasury notes. ...

Patagonia’s troubled waters

IT IS the conventional image of a grizzled gaucho lassoing cattle on the endless pampas that conjures up the notion of a still untamed frontier in Argentina. But if anywhere in the country resembles the wild west it is the waters off its long eastern shore, especially the windswept Patagonian coast, where fishermen prowl for squid, shrimp and hake. A combination of overfishing, weak regulation and belligerent unions has left the industry floundering, incidentally dealing a blow to Argentina’s decades-long effort to populate and develop its desolate southern steppes.

The country’s biggest fishing fleet is based at Mar del Plata, in Buenos Aires province. Much of its workforce is employed informally, without legal contracts. The problems are of a different order at Puerto Madryn, the Patagonian home of the second-biggest commercial fishing fleet. Fishing businesses received subsidies in the 1980s and 1990s to set up there, as part of a government effort to develop Patagonia. These companies flourished after Argentina’s big devaluation of 2002, because they export all of their catch but most of their costs are in pesos. Catches were plump and so were profits. ...