Muslims Didn’t Kill U.S. Diplomats in Benghazi

Muslims Didn’t Kill U.S. Diplomats in Benghazi

First came anger. Anger at the images of the burning consulate. Anger at the senseless loss of life, at those who rioted, and the few who killed. On the anniversary of Sept. 11th that brought tragedy to so many, now more Americans were caught in the crossfire of a fight that never ended.

Then came questions. Secretary of State Hilary Clinton in her address to the nation asked “how could this happen in a country we helped liberate, in a city we helped save from destruction?”

Unfortunately anti-American sentiment never died with Gaddafi. An active terrorist training camp operated freely nearby. A bomb and note were left outside the Consulate back in July and a British diplomatic convoy had been attacked. The extremist flame has yet to be extinguished.

Finally the blame. It would be all too natural to say that Muslims were the cause of this senseless tragedy. After all, the killings are often “in the name of” Islam. Attackers yell “Allah hoo-akbar” (God is great), though Sunnis and Shia, both Muslim, yell the same when they kill each other. Muslims didn’t kill U.S. diplomats in Benghazi on 9/11, 2012, terrorists did. Those who call to the divine in the support of violence live furthest from the true foundations of their own religion, whether a Wisconsin murderer of Sikhs, a Norweigan fascist or extremists in Benghazi.

New images are now appearing of Libyans with signs expressing their sorrow at what happened. We can only hope they continue to come out in greater numbers to support the new Libya — their Libya — liberated by their own sacrifices to create a country free of the violence and fear of Gaddafi’s reign of terror and the radical groups now festering within their borders.

Americans too have now sacrificed their lives for the new Libya. Mourning has begun for the families who lost so much. The fallen diplomats went to Libya to do a job that few would undertake in conditions that most would never tolerate. Let’s hope that the majority of Libyans, who aren’t terrorists, continue the fight against those bent on depriving them of the liberty they fought so hard to win in the first place.

In memorium:


Photos: Mustafa El-Shridi and

CNN Commentary- Why China Needs a PR Makeover

CNN Commentary- Why China Needs a PR Makeover

The China Central Television building in Beijing towers over everything around it. As a marvel of design, two sloping pillars meeting at an odd angle in mid-air, the construction seems to defy gravity. And yet, for all its external modernity, China’s main mouthpiece to the world – and the censorship regime that it helps underpin – remains lost in a backwater of a propagandist past.

Across the world, headlines in the free press have circulated about the whereabouts of China’s heir apparent, Xi Jinping. Premier Wen Jiabao counseled against speculation after Xi canceled a meeting with U.S. Secretary of State Hillary Clinton several days ago (on possibly her last visit to China as diplomat-in-chief). But how could there not be a raft of largely unsubstantiated stories circulating when Xi disappears from public view in the lead up to the most highly anticipated, internationally watched, single-party transfer of power in the world?

Uncertainty about the Chinese economy and its slow motion slide into lower growth are widely known about both within and outside China. Now the government’s ability to orchestrate political transitions like a stage performance shows signs of weakening as well.

Full CNN blog post.

Re-Thinking China’s Rise – Real Estate

Re-Thinking China’s Rise – Real Estate

For many years now proponents of China’s endless rise, and its ever expanding real estate sector, point to a stream of workers flowing into cities as the world’s largest rural-to-urban migration unfolds. Stephen Roach, former head of Morgan Stanley Asia and now at Yale makes the argument quite succinctly in an August 29th Project Syndicate article:

“Reports of ghost cities, bridges to nowhere, and empty new airports are fueling concern among Western analysts that an unbalanced Chinese economy cannot rebound as it did in the second half of 2009. . . But the pessimists’ hype overlooks one of the most important drivers of China’s modernization: the greatest urbanization story the world has ever seen.”

He goes on to mention a series of statistics highlighting the increasing flow. As of 2011 over half of China’s population now lives in cities. Both the OECD and consulting firm McKinsey predict the trend to continue well into 2025 – 2030. And because tens of millions continue seeking their fortunes in cities they’ll all need somewhere to live.

“Shanghai Pudong is the classic example of how an “empty” urban construction project in the late 1990’s quickly became a fully occupied urban center, with a population today of roughly 5.5 million. . . China cannot afford to wait to build its new cities. Instead, investment and construction must be aligned with the future influx of urban dwellers. The “ghost city” critique misses this point entirely.”

Concerns however can’t be dismissed so easily.

First and foremost, rural-to-urban migration continuing at the same rate while China was growing at double-digits is highly unlikely. China’s economy has been slowing far faster than most expect and may be hovering closer to 7% rather than 9% for 2012.  Peking University’s Michael Pettis predicts slow growth and difficulties in re-balancing over the longer term.

The Pudong example is a bit of a red herring as well. Lying just across the river from Shanghai, one of China’s largest cities and busiest ports, and heavily supported by Beijing’s leaders, Pudong was destined to become heavily populated. Rental rates in Queens, Brooklyn and Jersey City, just across the river from Manhattan were also barely affected by the real estate collapse in the U.S. The exception doesn’t prove the rule.

Does Ordos, or any number of other third and fourth tier urban infrastructure projects hold as much appeal? Probably not. And all of those airports have actual costs associated with their under-use. Banks may be sitting on more debt than they now recognize without landing fees paying back the construction loans taken out by local governments. A heavily state-influenced finance sector may cushion the blow by rolling over or extending those obligations, but these aren’t risk free investments.

Another key assumption: the real estate being built matches the demands of urbanization and not merely investment for choice-deprived wealthy Chinese.

True enough migrants flooding into Chinese cities looking for work need some place to live but the construction and factory workers stay mostly in temporary dorms on site and do not have residency permits to stay in these cities. Others, including newly minted college grads pack into tiny apartments often with 4-6 people per room. They earn barely a living wage and can only dream of someday owning their own place. Far too few affordable housing units were being built prompting the central government to demand an additional 36 million units by 2015.

That goal is proving far harder to implement than decree.

Lucy Hornsby of Reuters reported: “a good portion of what’s being built is already-planned construction re-labeled as affordable housing.” The Peterson Institute’s Nicholas Borst ran a sensitivity analysis estimating how much government funding would be needed to offset a drop in commercial lending. He found that 2011 levels accounted for only 10% of what was needed. The rest was meant to be provided by already cash-strapped local governments.

Local governments apparently aren’t filling the gap.

The China Development Research Foundation (reporting to the State Council, one of China’s highest central government organizations) stated “local governments…neglect the construction of public housing even as they are pushed by the central government to implement public-housing policies,” according to a story by the Wall Street Journal’s Esther Fung.

Corruption degrades officially designated government funding even more. Reuters highlighted China’s National Audit Office report on the misuse of $471 million in 2011 affordable housing funds. And that’s the part they caught.

So who has been buying the new and mostly high-priced apartments that drove the initial real estate boom – those with limited investment choices. And for years real estate had the best returns, which fueled even more development projects and higher prices. The Chinese government then stepped in to cool the market with rules limiting second or third residence ownership and increased minimum down payments.

None of this economic activity was driven by the rural-to-urban migration of mostly poor workers.

The most bullish analyses on China often have more to sell than to explain. As China’s slowdown continues, and hairline fissures begin to widen, expect more uncertainty not less about the perpetual economic growth story.


Photo: Map of China’s plan for nation-wide high-speed rail, Shanghai New Railway Station, 2010.

CNN Commentary: Has the UN Lost Its Peacekeeping Mandate?

CNN Commentary: Has the UN Lost Its Peacekeeping Mandate?

Now that Kofi Annan has stepped down from his position as U.N. Arab League Envoy to Syria and peacekeeping troops are being removed from the country one has to wonder – does the United Nations have any role to play in conflict resolution?

The reality is that the Annan Plan, which supported an interim government to shepherd Syria into a post-dictatorship future, was doomed from the start. Bashar al-Assad was to unilaterally step down in the middle of ongoing hostilities while his forces held the momentum against a popular uprising.

Al-Assad of course played the statesman, met with U.N. officials and allowed troops to enter Syria. No one was fooled for long. His military began an all-out assault soon after Annan’s plane took off. Helicopter gunships and fighter jets strafed cities as civilian casualties mounted. Nearly $17 million was authorized for the 150 military observers and 105 civilians. While a paltry sum considering the more than $7 billion peacekeeping budget, that money could have funded, for example, 2,400 water projects for creating wells to bring safe drinking water to over a million people in need.

Instead, United Nations’ efforts lengthened by weeks if not months a concerted move by regional powers to openly oppose Syria’s indiscriminate attacks on its citizenry.  The General Assembly then voted to censure its own Security Council for failing to do more. . . . Read more here.

The Decline of the Rest

The Decline of the Rest

A popular economic theme made the rounds not so long ago that featured prominently in a series of “end of the west, rise of the rest” predictions. It went something like this.

Emerging Asia, now an independent source of world growth driven by their expanding middle class no longer relied on the collective “west” for their economic well being. These countries had struck domestic “gold” freeing them from economic cycles in the rest of the world. It was called decoupling and it was wrong.

The fascination with the idea, if not the fact, of independent economic growth grew from a series of statistics. China had become the world’s second largest economy (by GDP), eclipsing the tech giant nation to their east, Japan. Decades of near double-digit growth meant China would overtake the U.S, and ostensibly the world, in 2020, 2030 or 2040 depending on the study. No end to high-rises, malls and luxury cars was on the horizon. China had become the perpetual growth machine for the ages.

India too was ramping up to break-neck speed. Its tech sector dominated outsourcing and was aiming for indigenous innovation with chip design and software. Bangalore was the new Silicon Valley. Largely untouched by the 2008 financial crisis that sent the U.S. reeling into recession, India’s massive population, natural resources, and increasingly business-minded politicians were about to unleash the second great consumer wave of the 21st century.

Ideologically the rising Asia theme also satisfied nationalistic tendencies that saw in their growing wealth, and the supposed decline of the U.S., an historic reversal of fortune. Decades if not centuries of perceived second-nation status had ended. Even capitalism itself had been rendered mute to the alternate, more socialist common cause of Chinese and Indian inspired growth.

In the last several weeks another set of statistics have appeared. Slowing growth is no longer just for the U.S. with a disappointing 1.7% in Q2, along with recession-hit Europe and now Japan. China too has seen a dramatic fall in consumer demand. Overall growth, as a manufactured number itself, will likely fall somewhere between 7.6% – 8.0% for the year, but data out on electricity production, warehouses overflowing with commodities including steel and coal, and a glut of other goods strongly suggest greater slowing, even if not officially admitted.

India’s leading figures are ratcheting down as well, currently to a sub 6.0%. Even in vibrant southeast Asian countries including Vietnam and Thailand face stronger headwinds (though Malaysia and Indonesia continue to buck the trend). The slowdown has now turned truly global. Commodity prices for copper, a key input for any advanced economy, test yearly lows as broad-based demand wanes.

Asia hadn’t built a world-leading growth engine after-all because the middle class continued to face severe restrictions. Income gaps widened and while certainly new consumerism did emerge, it can no longer be maintained absent the institutions of reliable government. That means protecting intellectual property, enforcing tax collection and limiting the corrosive effects of corruption.

In the end emerging Asia isn’t driving world growth, and the collective fortunes of the “west and the rest” are more intertwined than ever. Both developed and developing economies face constrained opportunity going forward. When recovery returns, and eventually it will, both may feel the rising tide together. Until then it’s a long slog through tough economic times.

South China Sea First Test for U.S. Shift – Business Insider Article

Tensions are rising again in Southeast Asia as competing claims over the resource rich South China Sea push closer to boiling point. One would hope that countries in the region would take concerted action. That hope would be misplaced.

An increasingly militarized land and sea grab continues despite calls for peaceful resolution. With the U.S. in full Asian tilt, the South China Sea dispute is shaping up to be the first major test of its Pacific re-engagement. What the U.S. can or should do remains woefully undefined.

Full article available here.

Why Syria Matters

After months of skirting around the diplomatic edges of a year and a half old Syrian crisis the U.S. finally drew a red line.  If chemical weapons enter the conflict the U.S. will act with force. That prompted two of Assad’s last remaining benefactors to step up their rhetoric against greater U.S involvement in a civil war that has killed approximately 18,000 people and displaced hundreds of thousands more (see PBS for a succinct timeline.)

The AP is reporting that Russia, main military backer and advisor of the Assad regime, received Syrian assurances that stockpiles would not be used and they remained firmly under government control. China, echoing Syria, said the Americans were using the risk to justify intervention.

Why the sudden interest in kinetic involvement (aka bombs and bullets) rather than the continued non-lethal support the U.S. is already providing, including humanitarian assistance and commmunications? Syria, after years of speculation finally stated publicly that it has chem/bio weapons. An attack by “external forces” could trigger their use, according to Syrian government officials via the New York Times.

If the regime is teetering on the edge, as many suspect it may be considering the overwhelming use of conventional force, including fighter jets, helicopter gun ships and tanks, then chem/bio may be its last resort. Defining “external” could be as easy as saying foreign fighters, which are already battling alongside the Syrian Free Army.

Assad has shown a callous disregard for the non-Alewite majority civilian population so far, reminiscent of Saddam Hussein’s murderous rampages of the past. There is little reason to believe that the Iraqi Kurdish fate of a chemical gas attack might not befall Syrians as well.

At the moment Assad appears to favor a fight to the death having rebuffed the UN and two approaches by the Arab League to step down with safe passage. The BBC reported that during a recent visit to Moscow, Syrian Deputy Prime Minister Qadri Jamil added an Assad exit to the standard talking points of “options”, but not if Assad had to resign first – a clear non-starter.

Radicalized opposition groups possessing chem/bio weapons pose a definite threat of enhanced terrorism well beyond the region. Both Russia and purportedly China face potential Islamic fundamentalist uprisings within their borders which is perhaps one reason they favor these weapons under Syrian control. Even more importantly long standing economic interests including oil and Cold War era positioning for spheres of non-U.S. dominated influence define Russian and Chinese alliances with Assad.

Syria also has one of the best equipped conventional militaries in the region. With a virtual arms bazaar for the budding terrorist group, landmines and shoulder mounted rockets that can take down aircraft would pose an immediate threat if seized by radical groups. The Monterey Institute’s Deputy Director Leonard S. Spector lays out five categories of weapons and associated concerns in his July Congressional testimony.

Intentionally or otherwise this last hold-out of the Arab Spring has turned into a battleground for influence while a captive Syrian populace pays the ultimate price. Still a U.S. ground invasion remains a remote possibility. There is no stomach for more U.S. casualties after Iraq and Afghanistan and even less so in the run-up to elections this fall.

That doesn’t mean there isn’t a lot at stake for the U.S. if only that were better defined.

What Really Ails America This Election Season

The internet is abuzz with criticism of Niall Ferguson’s factually-challenged rebuke of President Obama’s performance in the latest Newsweek cover story. His views include a steady stream of slanted statistics circulating these days (which is not to say there aren’t reasonable criticisms out there). But that’s nothing new for the historian turned pundit.

Consider his January 16, 2012 Newsweek article “Rich America, Poor America” in which he uses Charles Murray’s book “Coming Apart” as evidence for the uneducated, lazy and irreligious poor in America essentially being the cause of their own misfortune. After all educated people simply self-segregate themselves, have smarter children, go to church more, and work harder than the poor (his assessment). By the end of the article he recommends Romney read the book as a guide to fixing the country (article here).

In “The Cure for Our Economy’s Stationary State”, 7/16/12, he focuses on rising disability claims and people not moving around the country as much as they purportedly did in the past to find jobs as reasons for U.S. economic stagnation. Again it’s the “lazy” poor abusing the system or just not working hard enough.

Disability claims have been rising. Yet he doesn’t bother to address precisely how much is due to an increase of the aging population and other factors or exactly how much fraud is occurring (or its cost on economic growth). Instead he leans on overly general statistics and insinuation. Here’s a certainty, something definitely happened back in 2008 on Wall Street that stinks like abuse. Maybe that was a plot by overnight janitors to sneak derivative trading schemes into the computers at night and pad their retirement accounts, maybe not.

Then he uses the overplayed China card saying:

“It is Westerners who are in the stationary state, while China is growing faster than any other major economy in the world.”

As economists and well informed historians know all too well countries in different stages of economic development grow at different rates. That China is in a growth spurt coming out of a very low developmental base starting in the late 1980’s is a well studied phenomenon. Rwanda, Indonesia and Lithuania have all been growing (and outpacing the U.S.) lately as well. Good for them. That says absolutely nothing about what ails America.

And finally he says:

“The mood disorder is especially bad for investors. Only seven out of 47 national stock markets around the world have posted gains in the last 12 months.”

Is he suggesting that U.S. markets are among those without gains and U.S. investors have fallen on hard times? Fact check: The Dow Jones Industrial (DJI) is up over 22% from 12 months ago. Maybe he meant since January, 2012. Um, nope. Still up. Here’s the chart.

Okay, okay, maybe he was referring to NASDAQ. Wrong again. A gain of almost 24% since a year ago, and up since January too. Take a look here. These two data points took all of five minutes and basic math to figure out.

Mislead and misdirect appear to be the commentary tricks of the trade these days rather than fact-based opinion. Maybe this is what you get when a historian tries to play economist, except that he isn’t even playing economist but simply an information-twisting partisan hack.

As we go into election season what America really needs is informed debate. There are plenty of thinkers who take the future of this country very seriously and have good arguments to support their positions (conservative and liberal alike). Ferguson is not among them.

Reading (and Misreading) China’s Economy

Reading (and Misreading) China’s Economy

A wave of articles and data have come out in the last few weeks on the current and future state of China’s economy. Like the Beijing air, there’s nothing clear about what’s going on in the world’s second largest economy, let alone where China may end up by year’s end. Sometimes it’s all blue skies, most other days it’s barely breathable.

CCB’s recent private sector survey dubbed the China “beige book” interviewed 2,000 businesses. According to Bloomberg the report focused on business aspirations painting a contrarian optimistic view. Other official figures, such as they are, indicated slight short-term improvements including low inflation, rising household incomes and a slight rebound in real estate prices.

These stand in stark contrast to the litany of negative economic news. HSBC’s purchasing manager’s index showing continued contraction from a shrinking base. China’s official PMI showed slowing growth bordering on contraction. Local finances are rising to unstable levels as city and provincial officials, eager to prove their compliance with national growth targets, took on enormous debts apparently with no way to pay them back. Industrial production figures, electricity usage, and stock market performance all point to harder times ahead. Add to that weak retail sales and price wars and the slowdown looks deeper and more significant.

Chinese government officials, most notably Premier Wen, consistently warn of more problems to come. Two recent China bank rate cuts highlight where economic policymakers stand. Time to re-start the lending engines, but the quality of that money flow remains questionable. There has been no fundamental reform of the banking sector (see “Red Capitalism” by Walter and Howie for a book length analysis or Michael Pettis’ blog for current warnings.)

One problem with any soft data survey in China is the tendency for those interviewed to inflate or underestimate their sense of where things are and where they’re going, depending on the climate. Information is political currency and the control of that currency like the yuan is a complicated business. For economists accustomed to watching the hard numbers more than than aspiration of consumers or businesspeople the obscurity of statistics is particularly acute. Anyone attempting to invest in a Chinese company is well advised to examine the first set of books, scrutinize the second and try to find the third.

This lack of transparency, and the desire to avoid the accountant’s incisive gaze has now shown up in Chinese companies delisting from U.S. stock exchanges because of the perceived onerous reporting requirements of regulators. Sinoforest with its “irregularities” ended up in bankruptcy. Moody’s reported 49 firms with increased risk a year ago and the questions keep coming with Hong Kong listed firms now ringing alarm bells. The U.S. is no stranger to scandal. Too bad the SEC never got around to investigating Lehman Brothers, but a familiar wind blows through China’s financial markets these days too similar to the schemes and funny money business of Wall Street.

Another problem is the tendency to make sweeping claims from short term data. One or two months does not a trend make, but eager media cycles and investors selling their latest decisions to move money in or out constantly claim the higher ground. That the Shanghai composite index is down 15% from its May 2012 high either means investors are fleeing a sinking ship, or the market is attractively undervalued.

Conversations about hard vs. soft landings miss the main point of China’s rise and recent slowdown. Years of muddling through after such wild growth may do just as much damage as a U.S. style banking crisis. Either way the economy is in for a rough ride. Watch the middle class for signs of where China is headed. They’re the country’s real future.

Photo: Shanghai Shopping, (c) Brian P. Klein, 2012

World Politics Review Article on the Global Middle Class – Part II

World Politics Review Article on the Global Middle Class – Part II

The damage done to the global middle class, while significant, is not irreparable. The solutions are as varied as the countries themselves, but they all share several key features that influence whether a consumer-driven economy will flourish or not.

First and foremost is access to capital for small and medium-sized enterprises. In developed and developing economies alike, funding all but dried up during the economic crisis that began in U.S. and quickly spread around the world. Especially during recessionary periods, start-ups are critical job creators compared to existing firms, which tend to shed employees. During the 1991 and 2002 U.S. recessions, start-ups added nearly 3 million new jobs, while established firms laid off 4 million to 5 million people, according to a Kaufmann Foundation report.

Misguided government regulations have also been thwarting the return of the middle class. Breaking up the excessive influence of conglomerates in emerging economies is another way to create room for the middle class, but doing so often proves to be difficult and controversial. Policymakers, no matter where they are, need to shift their fixation from top-line statistics like GDP growth, which can obscure wealth-gap and purchasing-power problems, and focus more on the health and size of their middle class. Until the world’s middle class recovers, there will be no global recovery.

Full article is available on the World Politics Review website.

Photo: President Barack Obama signs the Middle Class Tax Relief and Job Creation Act of 2012 in the Oval Office, Feb. 22, 2012 (White House photo by Pete Souza).