Creatively, Is How I Live My Life and Experience Nirvana

Of all human activities, creativety comes closest to providing the fulfillment we all hope to get in our lives. Call it full-blast living.

Creativity is a central source of meaning in our lives. Most of the things that are interesting, important, and human are the result of creativity. What makes us different from apes—our language, values, artistic expression, scientific understanding, and technology—is the result of individual ingenuity that was recognized, rewarded, and transmitted through learning.

When we’re creative, we feel we are living more fully than during the rest of life. The excitement of the artist at the easel or the scientist in the lab comes close to the ideal fulfillment we all hope to get from life, and so rarely do. Perhaps only sex, sports, music, and religious ecstasy—even when these experiences remain fleeting and leave no trace—provide a profound sense of being part of an entity greater than ourselves. But creativity also leaves an outcome that adds to the richness and complexity of the future.

I have devoted 30 years of research to how creative people live and work, to make more understandable the mysterious process by which they come up with new ideas and new things. Creative individuals are remarkable for their ability to adapt to almost any situation and to make do with whatever is at hand to reach their goals. If I had to express in one word what makes their personalities different from others, it’s complexity. They show tendencies of thought and action that in most people are segregated. They contain contradictory extremes; instead of being an “individual,” each of them is a “multitude.”

Here are the 10 antithetical traits often present in creative people that are integrated with each other in a dialectical tension.

1.      Creative people have a great deal of physical energy, but they’re also often quiet and at rest. They work long hours, with great concentration, while projecting an aura of freshness and enthusiasm. This suggests a superior physical endowment, a genetic advantage. Yet it is surprising how often individuals who in their seventies and eighties exude energy and health remember childhoods plagued by illness. It seems that their energy is internally generated, due more to their focused minds than to the superiority of their genes.

This does not mean that creative people are hyperactive, always “on.” In fact, they rest often and sleep a lot. The important thing is that they control their energy; it’s not ruled by the calendar, the dock, an external schedule. When necessary, they can focus it like a laser beam; when not, creative types immediately recharge their batteries. They consider the rhythm of activity followed by idleness or reflection very important for the success of their work. This is not a bio-rhythm inherited with their genes; it was learned by trial and error as a strategy for achieving their goals.

One manifestation of energy is sexuality. Creative people are paradoxical in this respect also. They seem to have quite a strong dose of eros, or generalized libidinal energy, which some express directly into sexuality. At the same time, a certain spartan celibacy is also a part of their makeup; continence tends to accompany superior achievement. Without eros, it would be difficult to take life on with vigor; without restraint, the energy could easily dissipate.

2.      Creative people tend to be smart yet naive at the same time. How smart they actually are is open to question. It is probably true that what psychologists call the “g factor,” meaning a core of general intelligence, is high among people who make important creative contributions.

The earliest longitudinal study of superior mental abilities, initiated at Stanford University by the psychologist Lewis Terman in 1921, shows rather conclusively that children with very high IQs do well in life, but after a certain point IQ does not seem to be correlated any longer with superior performance in real life. Later studies suggest that the cutoff point is around 120; it might be difficult to do creative work with a lower IQ, but an IQ beyond 120 does not necessarily imply higher creativity.

Another way of expressing this dialectic is the contrasting poles of wisdom and childishness. As Howard Gardner remarked in his study of the major creative geniuses of this century, a certain immaturity, both emotional and mental, can go hand in hand with deepest insights. Mozart comes immediately to mind.

Furthermore, people who bring about an acceptable novelty in a domain seem able to use well two opposite ways of thinking: the convergent and the divergent. Convergent thinking is measured by IQ tests, and it involves solving well-defined, rational problems that have one correct answer. Divergent thinking leads to no agreed-upon solution. It involves fluency, or the ability to generate a great quantity of ideas; flexibility, or the ability to switch from one perspective to another; and originality in picking unusual associations of ideas. These are the dimensions of thinking that most creativity tests measure and that most workshops try to enhance.

Yet there remains the nagging suspicion that at the highest levels of creative achievement the generation of novelty is not the main issue. People often claimed to have had only two or three good ideas in their entire career, but each idea was so generative that it kept them busy for a lifetime of testing, filling out, elaborating, and applying.

Divergent thinking is not much use without the ability to tell a good idea from a bad one, and this selectivity involves convergent thinking.

3.      Creative people combine playfulness and discipline, or responsibility and irresponsibility. There is no question that a playfully light attitude is typical of creative individuals. But this playfulness doesn’t go very far without its antithesis, a quality of doggedness, endurance, perseverance.

Nina Holton, whose playfully wild germs of ideas are the genesis of her sculpture, is very firm about the importance of hard work: “Tell anybody you’re a sculptor and they’ll say, ‘Oh, how exciting, how wonderful.’ And I tend to say, ‘What’s so wonderful?’ It’s like being a mason, or a carpenter, half the time. But they don’t wish to hear that because they really only imagine the first part, the exciting part. But, as Khrushchev once said, that doesn’t fry pancakes, you see. That germ of an idea does not make a sculpture which stands up. It just sits there. So the next stage is the hard work. Can you really translate it into a piece of sculpture?”

Jacob Rabinow, an electrical engineer, uses an interesting mental technique to slow himself down when work on an invention requires more endurance than intuition: “When I have a job that takes a lot of effort, slowly, I pretend I’m in jail. If I’m in jail, time is of no consequence. In other words, if it takes a week to cut this, it’ll take a week. What else have I got to do? I’m going to be here for twenty years. See? This is a kind of mental trick. Otherwise you say, ‘My God, it’s not working,’ and then you make mistakes. My way, you say time is of absolutely no consequence.”

Despite the carefree air that many creative people affect, most of them work late into the night and persist when less driven individuals would not. Vasari wrote in 1550 that when Renaissance painter Paolo Uccello was working out the laws of visual perspective, he would walk back and forth all night, muttering to himself: “What a beautiful thing is this perspective!” while his wife called him back to bed with no success.

4.      Creative people alternate between imagination and fantasy, and a rooted sense of reality. Great art and great science involve a leap of imagination into a world that is different from the present. The rest of society often views these new ideas as fantasies without relevance to current reality. And they are right. But the whole point of art and science is to go beyond what we now consider real and create a new reality. At the same time, this “escape” is not into a never-never land. What makes a novel idea creative is that once we see it, sooner or later we recognize that, strange as it is, it is true.

Most of us assume that artists—musicians, writers, poets, painters—are strong on the fantasy side, whereas scientists, politicians, and businesspeople are realists. This may be true in terms of day-to-day routine activities. But when a person begins to work creatively, all bets are off.

5.      Creative people tend to be both extroverted and introverted. We’re usually one or the other, either preferring to be in the thick of crowds or sitting on the sidelines and observing the passing show. In fact, in psychological research, extroversion and introversion are considered the most stable personality traits that differentiate people from each other and that can be reliably measured. Creative individuals, on the other hand, seem to exhibit both traits simultaneously.

6.      Creative people are humble and proud at the same time. It is remarkable to meet a famous person who you expect to be arrogant or supercilious, only to encounter self-deprecation and shyness instead. Yet there are good reasons why this should be so. These individuals are well aware that they stand, in Newton’s words, “on the shoulders of giants.” Their respect for the area in which they work makes them aware of the long line of previous contributions to it, putting their own in perspective. They’re also aware of the role that luck played in their own achievements. And they’re usually so focused on future projects and current challenges that past accomplishments, no matter how outstanding, are no longer very interesting to them. At the same time, they know that in comparison with others, they have accomplished a great deal. And this knowledge provides a sense of security, even pride.

7.      Creative people, to an extent, escape rigid gender role stereotyping. When tests of masculinity/femininity are given to young people, over and over one finds that creative and talented girls are more dominant and tough than other girls, and creative boys are more sensitive and less aggressive than their male peers.

This tendency toward androgyny is sometimes understood in purely sexual terms, and therefore it gets confused with homosexuality. But psychological androgyny is a much wider concept referring to a person’s ability to be at the same time aggressive and nurturant, sensitive and rigid, dominant and submissive, regardless of gender. A psychologically androgynous person in effect doubles his or her repertoire of responses. Creative individuals are more likely to have not only the strengths of their own gender but those of the other one, too.

8.      Creative people are both rebellious and conservative. It is impossible to be creative without having first internalized an area of culture. So it’s difficult to see how a person can be creative without being both traditional and conservative and at the same time rebellious and iconoclastic. Being only traditional leaves an area unchanged; constantly taking chances without regard to what has been valued in the past rarely leads to novelty that is accepted as an improvement. The artist Eva Zeisel, who says that the folk tradition in which she works is “her home,” nevertheless produces ceramics that were recognized by the Museum of Modern Art as masterpieces of contemporary design. This is what she says about innovation for its own sake:

“This idea to create something is not my aim. To be different is a negative motive, and no creative thought or created thing grows out of a negative impulse. A negative impulse is always frustrating. And to be different means ‘not like this’ and ‘not like that.’ And the ‘not like’—that’s why postmodernism, with the prefix of ‘post,’ couldn’t work. No negative impulse can work, can produce any happy creation. Only a positive one.”

But the willingness to take risks, to break with the safety of tradition, is also necessary. The economist George Stigler is very emphatic in this regard: “I’d say one of the most common failures of able people is a lack of nerve. They’ll play safe games. In innovation, you have to play a less safe game, if it’s going to be interesting. It’s not predictable that it’ll go well.”

9.      Most creative people are very passionate about their work, yet they can be extremely objective about it as well. Without the passion, we soon lose interest in a difficult task. Yet without being objective about it, our work is not very good and lacks credibility. Here is how the historian Natalie Davis puts it:

“I think it is very important to find a way to be detached from what you write, so that you can’t be so identified with your work that you can’t accept criticism and response, and that is the danger of having as much affect as I do. But I am aware of that and of when I think it is particularly important to detach oneself from the work, and that is something where age really does help.”

10. Creative people’s openness and sensitivity often exposes them to suffering and pain, yet also to a great deal of enjoyment. Most would agree with Rabinow’s words: “Inventors have a low threshold of pain. Things bother them.” A badly designed machine causes pain to an inventive engineer, just as the creative writer is hurt when reading bad prose.

Being alone at the forefront of a discipline also leaves you exposed and vulnerable. Eminence invites criticism and often vicious attacks. When an artist has invested years in making a sculpture, or a scientist in developing a theory, it is devastating if nobody cares.

Deep interest and involvement in obscure subjects often goes unrewarded, or even brings on ridicule. Divergent thinking is often perceived as deviant by the majority, and so the creative person may feel isolated and misunderstood.

Perhaps the most difficult thing for creative individuals to bear is the sense of loss and emptiness they experience when, for some reason, they cannot work. This is especially painful when a person feels his or her creativity drying out.

Yet when a person is working in the area of his of her expertise, worries and cares fall away, replaced by a sense of bliss. Perhaps the most important quality, the one that is most consistently present in all creative individuals, is the ability to enjoy the process of creation for its own sake. Without this trait, poets would give up striving for perfection and would write commercial jingles, economists would work for banks where they would earn at least twice as much as they do at universities, and physicists would stop doing basic research and join industrial laboratories where the conditions are better and the expectations more predictable.

©HarperCollins

Curbing Social Habits Under False Prentences

A very revealing report has been published by the European Commission. In it we see the wide divide between the powers that be, the hangers-on and the public citizen. It is an interim report into the latest plans to dehumanise the smoker, or otherwise known as Report on the public consultation on the possible revision of the Tobacco Products Directive (2001/37/EC).EU Consultation Report on Smoking

The question is: shall we make the laws against smoking in public more onerous, shall we create more restrictions on tobacco products, shall we make health warnings bigger, shall we point out that smokers eat babies and are often seen strangling fluffy kittens etcetera. Here is a small collection of the responses. 

From Governmental Representatives

A significant majority of Member States who submitted contributions to the public consultation were either in favour of extending the scope of the Directive or did not refer to the question in a detailed manner.

or

The majority of Member States were in favour of banning all types of smokeless tobacco products, which was also the position of the two EFTA countries responding to the consultation.

or

While most Member States were in favour of all proposed policy options for improving consumer information, plain packaging proved to be the most controversial. Almost half of respondents supported the introduction of plain packaging alongside the other recommended changes, but several indicated that the solutions to these problems should be more carefully analysed. A small number of Member States were in favour of maintaining the existing regulations, noting a strong reservation against plain packaging.

or

Member States were in favour of establishing a common compulsory reporting format for communicating ingredients information.

or

Almost all Member States supported some form of increased tobacco control across the range of options, though the specific breakdown of options was quite varied. Most Member States supported a ban on internet sales or a ban on vending machines.

 

From Non-Governmental Organisations 

Now there are two forms of NGOs in this list, those funded by governments, and those supporting smokers rights which are not. I shall concentrate on the publicly funded para-governmental organisations – here called ‘Public Health Organisations’.

Public health organisations universally supported regulating tobacco and nicotine products, on the grounds of the potential health dangers of these products. Many argued for the strict limitation of novel forms of nicotine delivery systems, whereby these nicotine systems should only be sold as smoking cessation aids, subject to the regulatory framework on pharmaceutical products. They also argued for the inclusion of herbal cigarettes into this framework, citing that the most harm from these products has to do with the combustion and inhalation of smoke, which is identical to cigarette usage.

or

Public health organisations emphatically maintained the ‘high priority’ status of the current ban on snus within the EU. According to these respondents, there is no legitimate reason to introduce a dangerous product onto the market, because it is impossible to predict how snus would be perceived or used in other countries.

or

Arguments were presented to increase the size of the pictorial warnings to 80% of the pack, to regularly rotate warning messages to maintain the ‘freshness’ of each statement, and to include information on the packaging about a ‘quit line’ to help stop smoking.

Additionally, public health organisations opted for plain packaging on the grounds that branding tactics used today can give the consumer a false sense that one pack may be safer than another.

or

Almost all respondents pushed for the need to establish a common compulsory reporting format and to introduce fees and sanctions to cover the costs of data collection and analysis work on ingredients.

or

Public health organisations were universally in favour of banning all possible categories in this question. Banning sales of tobacco via the internet was argued to be a logical extension of the ban on cross-border advertising and promotion of tobacco products within the EU.

Banning vending machine access was justified by public health organisations on the grounds that most Member States already have bans or restrictions in place, which have been shown to reduce youth smoking rates. Finally, restricting display and promotion of tobacco products at the point of sale was claimed to be justified because it is or will soon be mandatory in some Member States. Proponents argued that restricting display of tobacco products also helps limit youth smoking and could help deter tobacco purchases by adults.
You get the idea: bans, restrictions, more legislation, harsher controls and so on from both governments and their paid paramilitaries.

Now let’s see what the citizen responses were. Could they differ from those that govern them? Could they disagree with those that know so much more than them? Maybe…

 

From Citizens 

A significant majority of respondents were against extending the scope of the Directive. While many presented that the problem definition was incorrect, vague, or unclear, the group as a whole demanded more scientific inquiry about the relative safety of novel forms of tobacco and other nicotine products. These respondents also argued about the consumer’s freedom of choice, so long as they are properly informed with the risks involved, and they criticised the tendency to over-regulate and prohibit products in this area.

or

A vast majority of respondents not only disagreed with the problem definition but were in favour of lifting the ban on snus. With the problem definition, several respondents were concerned that the Commission’s approach was too simplistic and overstated – referring to the complex nature and health effects of a diverse smokeless tobacco products market. Those in favour of lifting the ban on snus argued that scientific evidence showed that smokeless products were much healthier alternatives to tobacco smoking. Several respondents pushed for smokeless tobacco products to be priced cheaper than combustible products, in order to reduce the demand for cigarettes. Others were concerned about their freedom of choice as consumers, with several arguing that those over 18 years old should be free to decide for themselves. Still others felt that the EU already had too many regulations in place to begin creating more.

or

Largely in favour of maintaining the status quo, most respondents suggested that little, if any, scientific evidence exists to show that many of these options are effective ways to reduce smoking rates, or reduce youth uptake. They also argued that the EU did not need to establish more restrictions; smokers were already facing too much regulation to use a product they are legally entitled to consume. Education, they suggest, should not only be limited to the tobacco packaging, but should also be increased in schools and public campaigns. Finally, some respondents were worried that the use of plain packaging not only prevented free competition between manufacturers, but also increased the likelihood of counterfeit products entering the market.

or

Respondents were generally in favour of establishing a common compulsory reporting format, insomuch as the format was based on appropriate scientific criteria, and not based on concepts such as attractiveness. They, like many of the organisations and governments above, argued that the current ingredients reporting situation is fragmented, making it difficult for authorities to compare and analyse ingredients data. Manufacturers and importers, they reasoned, should be subject to the same reporting standards. Other respondents furthered this point by demanding that consumers have a right to know what is inside the products they use….

However, on the whole, not all respondents were in favour of changes to the status quo. Many advocated no restrictions, no further bans, and no changes, resulting in more freedom for tobacco products and their users. Others utilised this section to insert more general commentary on the EU’s role in standardising product regulation.

or 

A significant majority of respondents disagreed with the regulation of ingredients at the EU level. The majority of respondents referred to the lack of scientific evidence for such regulation on reducing tobacco consumption or youth uptake. Additionally, they criticised the term ‘attractiveness’ as a justification for the EU to arbitrarily decide which ingredients will be allowed and which not. The other arguments referred to a consumer’s freedom of choice and a generally critical response to the EU’s tendency to over-regulate.

or 

A significant majority of respondents opposed limiting access to tobacco products. The most commonly discussed issue was the display ban, where citizen arguments were similar to those used by industry representatives. The limitation of the legitimate use of the trademarks and branding displays, the lack of the possibility for customers to be fully informed about the accessibility, the price and characteristic of products and potential increase of the illicit trade were the most often used arguments. Some of the responses referred to the lack of scientific evidence that bans on the point of sale display of tobacco would impact smoking behaviour.This argument also referred to a lack of research regarding both vending machines and internet sales. The significant majority of respondents perceived these restrictions as an excessive intervention in a consumer’s right to decide. Rather, these respondents opted for more effective controls, such as age verification, in these channels of tobacco products.

Here we see it writ large. Those with cash and power want increasing control, those without it don’t. Those with cash and power want action before evidence, those without want to see evidence before action. Those with power and cash want legislation restrictions and bans, those without complain that there are too many controls already.

Now when the recommendations arrive in a few months, who do we think the EU will listen to?

© Elby

The Impact of Corporate Social Responsibility on Investment Recommendations

Read entire document: CSR and investment opportunities (Full report, 46 pages PDF)

Security analysts are increasingly awarding more favorable ratings to firms with corporate socially responsible (CSR) strategies, according to this paper by Ioannis Ioannou and HBS professor George Serafeim. Their work explores how CSR strategies can affect value creation in public equity markets through analyst recommendations. Key concepts include:

•Top executives and managers interested in implementing CSR strategies in their organizations know that negative analysts’ reactions, and subsequent value destruction in capital markets is a real possibility when they initially attempt to implement such strategies.
•Managers should be aware that not only what is communicated matters but also to whom it is communicated in the investment community. Research analysts differ in their ability to understand the implications of CSR.
•Among theoretical contributions, the research integrates diverse theoretical streams and offers the first empirical piece of evidence about how CSR strategies are perceived as value-creating by an important information intermediary: sell-side analysts.
•The work also integrates the CSR management literature with a large body of research in accounting and finance, to shed light on aspects of CSR activity for which little is known and much less is being understood; namely, the channels and the mechanisms through which the CSR impact is perceived and realized in public equity markets.

Russia tycoon orders all his employees to find God and get married after fires

A religion-obsessed Russian tycoon has ordered his employees to quickly embrace the Russian Orthodox Church or lose their jobs.

Vasily Boiko-The Great, who controls a major agricultural holding, has written to his 6,500 employees, ordering those “living in sin” to get married in church within two months or be fired.

The deadline, 14 October, is a Russian Orthodox festival. He has also banned any of his employees or their wives from getting abortions, saying he does not want to work with “killers.”

The farming tycoon said he was forced to resort to extreme measures after Russia was struck by an unprecedented drought and thousands of wild fires this summer.

“Such an extreme situation is punishment for the Russian people’s sins,” he told daily newspaper Komsomolskaya Pravda. “I need to take extreme measures including looking at the way my employees treat God.”

Mr Boiko-The Great added the suffix to his surname by deed poll and said he found God himself after a stint in jail on as yet unproven fraud charges.

His employees have reacted with bemusement to his directive, while government officials have warned the tycoon he risks breaking the country’s labour laws.

Mr Boiko-The Great said he was unfazed. “This is a private company and people working here must follow the rules,” he said.

Source: Various

Unemployment Spreads Like Wild Fire in the U.S

Austerity Fails Policy Test

There is an undisputed general law in public finance that sound fiscal policies must precede a sound currency. What is in dispute is what constitutes a sound fiscal policy. Neo-liberals deem recurring fiscal deficits as signs of unsound fiscal policy. Yet over the multi-year duration of most recession phases of business cycles in market economies, multi-year deficit financing to stimulate economic activities in a recession can be a very sound fiscal policy.

Under such circumstances, a balanced annual budget would be quite the opposite of a sound fiscal policy. Still, some recessions may take more than a decade to recover, even with persistent fiscal deficits if the funds are spent on wrong targets, as in the case of Japan after the Plaza Accord of 1985.

In Japan after Plaza Accord, the fiscal deficit did not help the Japanese economy because it had been spent on the wrong targets. Realistically, reducing the debt/GDP (gross domestic product) ratio is difficult with only fiscal reform: the economy must also be on a growth path.

As the fiscal deficit widens, the Bank of Japan bought up larger amounts of government bonds to avoid disruption in the government bond market. In this sense, Japan today resembles post-World War II United States, where the Federal Reserve implemented a bond price support policy to keep interest rates low.

Moreover, just as the exchange rate of the dollar was not damaged by Federal Reserve policy of bond support to keep interest rate low, the bond-buying trend in Japan has not lowered market confidence in the yen. Similar to the US in that period, Japan is a creditor that enjoys a persistent current account surplus. Thus Japan has the strength to ward off market challenges to confidence in its currency despite the mounting government debt financed by the central bank.

US policy after World War II was to buy government bonds by quantitative easing to check rampant rise in public debt, and to leverage economic growth for a soft-landing of the debt/GDP ratio. Japan today is similar in that the Bank of Japan is buying a limited amount of government bonds, but differs in that it shows no signs of halting growing debt and is falling into deflation and economic stagnation.

Quantitative easing (QE) describes a central bank monetary policy to increase the supply of money in an economy when the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

A central bank does this by first crediting its own account with money it has created ex nihilo (out of nothing). It then purchases financial assets, including government bonds and corporate bonds, from banks and other financial institutions in a process referred to as open market operation. The purchases, by way of account deposits, give banks the excess reserves required by them to create new money by the process of deposit multiplication from increased lending in the fractional reserve banking system. The increase in the money supply thus stimulates the economy. Risks include overeasing, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to pocket the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio. The latter seems to be what has happened in 2009 in US banks.

Post-Napoleonic War England shows that fiscal deficits can be cut even under deflation. In England’s case, however, improved productivity after the industrial revolution and the subsequent population increase generated high growth that more than offset deflation and helped lower the debt ratio. Japan, however, suffers not only low growth but also population decline; reducing the debt/GDP ratio under deflation seems unrealistic. The US economy will face population growth problems if current anti-immigration sentiments continue. Coupled with slow growth, the US economy will face many of the same problems faced by Japan it her lost decade.

As in the US, Japanese citizens share a sense of urgency regarding Japan’s fiscal health. In a public opinion poll, 60% of respondents already think that “raising consumption tax is unavoidable to maintain the social security system” (Yomiuri Shimbun, November 2009 survey). Behind such opinion is the heightened sense of crisis concerning Japan’s deteriorating fiscal health following the Lehman Brothers bankruptcy shock; stronger understanding that new financial resources are necessary to improve child-rearing support and impoverished healthcare; and the reality that even “budget screening” will only produce marginal revenue. Recent media coverage juxtaposing Greece’s crisis with Japan’s fiscal situation may also be contributing to public awareness. Yet the US, unlike Japan, does not enjoy a trade surplus to tap the consumption of other economies to cushion a reduction of its own fiscal deficits spending.

Japan’s 2009 government debt ratio is on par with post-Napoleonic War England (accumulative long-term debt reached 171% of GDP). The government bond market survives because almost all of the bonds are denominated in yen and held domestically (about 95%), and there is significant political room to raise taxes in the future.

Japan’s current 25.1% tax burden ratio (fiscal 2008) is low compared to European countries (England 37.5%; France 37.6%; Sweden 51.5%), and the possibility of a consumption tax hike is particularly high. If citizens recognize that their tax burden is low and accept a higher consumption tax there is no reason why the government bond market should collapse from worries over bond redemption. As society ages and the savings rate falls, however, Japan does face a gradual decline in its capacity to absorb government bonds.

Of course, to reduce the debt ratio Japan must not only raise taxes but also shake free from deflation and embark on an economic growth track (high nominal growth that yields a degree of inflation). Japan is fortunate to be in proximity of rapidly growing emerging markets such as China, affording it great potential to maintain growth by maximizing such demand. Whether Japan can really leverage this demand is unclear, but the potential leaves the door open to fiscal reform.

While Japan’s fiscal situation is therefore severe, there are paths towards improvement such as tax increases and growth. The issue is whether there is the political will to stanch further fiscal deterioration and make tax hikes and growth a reality. Absent a show of government will in this direction, the market will focus only on the negatives such as a falling capacity to absorb government bonds and difficulties in spurring growth and raising taxes.

Japan will be expected to become a deficit country even if it enjoys a current account surplus at that point. Of the forces that pressure the government towards fiscal prudence, market pressure such as rising long-term interest rates should come into play.

Moderate pressure from the market notwithstanding, Japan will likely end up raising taxes and address the problems without inviting disturbance in the market. The Bank of Japan will then need to provide financial support to foster an environment favorable to realizing high growth.

The situation in the EU

In March 2005, the European Union’s Economic and Financial Affairs Council (ECOFIN), under the pressure of France and Germany, relaxed the rules to respond to criticisms of insufficient flexibility and to make the pact more enforceable. Permissiveness infested the theoretical regulatory framework at the boom phase of the business cycle.

At the urging of Germany and France, the ECOFIN agreed on a reform of the Stability and Growth Pact (SGP). The euro convergence criteria as spelled out in the SGP are:
1. Inflation rates – No more than 1.5 percentage points higher than the average of the three best performing (lowest inflation) member states of the EU.
2. Government finance
a) Annual government fiscal deficit – The ratio of the annual government fiscal deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year. If not, it is at least required to reach a level close to 3%. Only exceptional and temporary excesses would be granted for exceptional cases.
b) Government debt – The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. Even if the target cannot be achieved due to the specific conditions, the ratio must have sufficiently diminished and must be approaching the reference value at a satisfactory pace.
3. Exchange rate – Applicant countries should have joined the exchange-rate mechanism (ERM II) under the European Monetary System for two consecutive years and should not have devaluated its currency during the period.
4. Long-term interest rates - The nominal long-term interest rate must not be more than 2 percentage points higher than in the three lowest inflation member states.

The ceilings of 3% of GDP for budget deficit and 60% of GDP for public debt were maintained, but the decision to declare a country in excessive deficit can now rely on certain parameters: the behavior of the cyclically adjusted budget, the level of debt, the duration of the slow growth period and the possibility that the deficit is related to productivity-enhancing procedures.

The pact is part of a set of Council Regulations, decided upon the European Council Summit on March 22-23, 2005. Having adopted unneeded permissiveness at the boom cycle, Germany is now leading the charge to reduce fiscal deficits in eurozone by promoting austerity programs in every eurozone member state in the midst of a severe recession.

The curse of IMF conditionalities

The problem with the International Monetary Fund (IMF) “conditionalities” cure in a sovereign debt crisis is its insistence on a balanced fiscal budget at the wrong time – during a monetary-induced recession – thus adding to the economic pain unnecessarily and assigning disproportional burden on the most defenseless segment of the population (the working poor), and condemning the impaired economy to an unnecessarily long path toward recovery.

Some are concerned that long-term Federal debt may balloon up to 180% of GDP.

While this development should be arrested by fiscal prudence, that is perhaps only half of the solution. The other half is to direct the fiscal deficit toward GDP growth. Sometimes a large fiscal deficit can help actually reduce its share of the GDP if the fiscal deficit generates a bigger GDP.

The Federal fiscal deficit in 1919 was 16.8% of a GDP of $78.3 billion. The war time Federal deficit in 1945 was 24.1% of a GDP of $223 billion. Despite a high fiscal deficit, US GDP kept rising after war to $275.2 billion in 1948 with a fiscal surplus equaling 4.3% of GDP. The 2010 Federal deficit is projected to be 10.6% of a GDP of $14.6 trillion.

Between 1920 and 1929, the Federal budget had a small surplus, while GDP grew to $103.6 billion in 1929. After the 1929 crash, the 1930 GDP fell $12.4 billion, about 12%, to $91.2 billion, while the Federal budget under Hoover still had a surplus of 1% of GDP. 

Not until after Franklin D Roosevelt came into office in 1933, when GDP had fallen by almost half to $56.4 billion, did the Federal deficit jump to 3.27% of GDP, in 1934. All through the New Deal years, the fiscal deficit stayed below 5% with the average annual deficit at around 3% of GDP. It did not rise until after the US entered World War II and peaked at 28.1% in 1943, 22.4% in 1944 and 24.1% in 1945. It fell to 9.1% in 1946 when GDP was $222.2 billion.

The total Federal fiscal deficit for the four years of World War II was about 100% of the average annual GDP of the same period. At the same time, the US grew to be the world’s strongest economy because the fiscal deficit was used to finance war production, not to bail out distressed financial institutions and inefficient industrial firms.

US fiscal deficit for fiscal year 2009 was more than $1.75 trillion, about 12.3% of GDP, the biggest since 1945. According the White House Budget Office, the cumulative fiscal deficit between FY2009 and FY2019 is projected to be almost $7 trillion. Total gross federal debt in 2008 was $10 trillion, projected to rise to over $23 trillion in 2019. Debt held by the public is projected to rise from $5.8 trillion in 2008 to $15.4 trillion in 2019. Interest expense in 2008 was $383 billion. The projection is expected to rise as both debt principal and interest rate are expected to rise.

The Issue of Inflation

Inflation is a different story. Moderate inflation is necessary for optimum economic growth, provided the burden of inflation is shared equally by all segments of the population, particularly not falling merely on wage earners. By the end of World War I, in 1919, US prices were rising at the rate of 15% annually, but the economy roared ahead as wages were rising in tandem with or slightly ahead of prices through wage-price control.

Income policies involving wage-price control have been employed throughout history from ancient Egypt, Babylon under Hammurabi, ancient Greece, during the American and French revolutions, the Civil War, World War I and II. A case can be made that that wage-price control has a mixed record as a way to restrain inflation, but it is irrefutable that income policies are effective in balancing supply and demand.

Yet in response to inflation, the Federal Reserve Board raised the discount rate in quick succession in 1919, from 4% to 7%, and kept it there for 18 months to try to rein in inflation by making money more expensive when banks borrowed from the Fed. The result was that in 1921, 506 banks failed.

The current financial crisis started in late-2007 and stabilized around mid-2009 after direct massive Fed intervention. It was by many measures an unprecedented phase in the history of the US banking system. In addition to the systemic stress and the stress faced by the largest investment and commercial banks, 168 depository institutions failed from 2007 through 2009. This was not the largest number of bank failures in one crisis. At the height of the savings and loan (S&L) crisis from 1987 to 1993, 1,858 banks and thrifts failed. However, the dollar value of failed banks assets in the financial crisis in 2007-2009 was $540 billion, roughly 1.5 times of the bank assets that failed in the S&L crisis in 1987-1993.

A research paper funded by the Federal Deposit Insurance Corporation (FDIC) on “Bank Failures and the Cost of Systemic Risk: Evidence from 1900-1930″, by Paul Kupiec and Carlos Ramireza (July 2008) found that bank failures reduce subsequent economic growth. Over this period, a 0.12% (1 standard deviation) increase in the liabilities of the failed depository institutions results in a reduction of 17 percentage points in the growth rate of industrial production and a 4 percentage point decline in real gross national product (GNP) growth. The reductions occur within three quarters of the initial bank failure shock and can be interpreted as a measure of the costs of systemic risk in the banking sector. The FDIC had been created by the New Deal only after 1934 to protect depositors.

In the current crisis that began in mid-2007, with the discount rate falling steadily to 0.5% on December 16, 2008, from a high of 6.25% set on June 2006, still 25 banks failed in 2008 and were taken over by the FDICk, while 140 banks failed in 2009 and 33 banks failed in just the first two months of 2010, putting the fee-financed FDIC in financial stress. Yet the Fed raised the discount rate to 0.75% on February 19, 2010. In contrast, in the five years prior to 2008, only 11 banks had failed from the debt bubble even when the discount rate stayed within a range from 2% to 6.25%.

Volcker, the fearless slayer of the inflation dragon

 In the 1980s, to counter stagflation in the US economy, the Fed under Paul Volcker (August 6, 1979 – August 11, 1987), kept the discount rate in the double-digit range from July 20, 1979 to August 27 1982, peaking at 14% on May 4, 1981. From August 1982 to its peak in August 1987, the Dow Jones Industrial Average (DJIA) grew from 776 to 2.722. The rise in market indices for the 19 largest markets in the world averaged 296% during this period.

Volcker, as chairman of the Fed before Greenspan, caused a double-dip recession in 1979-80 and 1981-82 to cure double-digit inflation, in the process bringing the unemployment rate into double digits for the first time since 1940. Volcker then piloted the economy through its slow long recovery that ended with the 1987 crash. To his credit, Volcker did manage to bring unemployment below 5.5%, half a point lower than during the 1978-79 boom, and the acknowledged structural unemployment rate of 6%.

Two months after Volcker left the Fed, to be succeeded by Greenspan, the high interest rate left by Volcker, inter alia, led to Black Monday, October 19, 1987, when stock markets around the world crashed mercilessly, beginning in Hong Kong, spreading west to Tokyo and Europe as markets opened across global time zones, hitting New York only after markets in other time zones had already declined by a significant margin.

The DJIA dropped 22.61%, or 508 points, to 1.738.74 on Black Monday. On October 11, 2007, the DJIA hit a high of 14.198.10. On March 2, 2009, it lost almost 300 points, or 4.2%, to end at 6763.29, its lowest point since April 25, 1997.

By the end of October 1987, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, New Zealand 60%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. Basic assumptions such as market fundamentalism, efficient market hypothesis and market equilibrium were challenged by events. Despite that dismal record in the 1980s, Volcker was appointed by President Barack Obama two decades later as first chair of the President’s Economic Recovery Advisory Board on February 6, 2009.

The 1987 stock-market crash was unleashed by the sudden collapse of the safety dam of portfolio insurance, a hedging strategy made possible by the new option pricing theory advanced by Nobel laureates Robert C Merton and Myron S Scholes. Institutional investors found it possible to manage risk better by protecting their portfolios from unexpected losses with positions in stock-index futures. Any fall in stock prices could be compensated by selling futures bought when stock prices were higher.

This strategy, while operative for each individual portfolio, actually caused the entire market to collapse from the dynamics of automatic herd-selling of futures. Investors could afford to take greater risks in rising markets because portfolio insurance offered a disciplined way of avoiding risk in declines, albeit only individually. But the reduction in individual risk was achieved by an increase in systemic risk.

As some portfolio insurers sold and market prices fell precipitously, the computer programs of other insurers then triggered further sales, causing further declines that in turn caused the first group of insurers to sell even more shares and so on, in a high-speed downward spiral. This in turn electronically generated other computer driven sell orders from the same sources, and the market experienced a computer-generated meltdown at high speed.

The unlearned lesson of the 1987 crash

The 1987 crash provided clear empirical evidence of the structural flaw in market fundamentalism, which is the belief that the optimum common welfare is only achievable through a market equilibrium created by the effect of countless individual decisions of all market participants each seeking to maximize his own private gain through the efficient market hypothesis, and that such market equilibrium should not be distorted by any collective measures in the name of the common good or systemic stability.

Aggregate individual decisions and actions in unorganized unison can and often do turn into systemic crises that are detrimental to the common good. Unregulated free markets can quickly become failed markets. Markets do not simply grow naturally after a spring rain. Markets are artificial constructs designed collectively by key participants who agree to play by certain rules. All markets are planned with the aim of eliminating any characteristic of being free for all operations. The “free market” is as much a fantasy as free love.

In response to the 1987 crash, the US Federal Reserve under its newly installed chairman, Alan Greenspan, with merely nine weeks in the powerful office, immediately flooded the banking system with new reserves by having the Fed Open Market Committee (FOMC) buy massive quantities of government securities from the repo market. He announced the day after the crash that the Fed would “serve as a source of liquidity to support the economic and financial system.” Greenspan created $12 billion of new bank reserves by buying up government securities, the proceeds of which would enter the banking system.

The $12 billion injection of “high-power money” in one day caused the Fed funds rate to fall by 75 basis points and halted the financial panic, though it did not cure the financial problem, which caused the US economy to plunge into a recession that persisted for five subsequent years. Worst of all, the monetarist cure for systemic collapse put the financial world in a pattern of crisis every decade: the 1987 crash, the 1997 Asian financial crisis and the financial crisis of 2007.

High-power money injected into the banking system enables banks to create more bank money through multiple credit-recycling, lending repeatedly the same funds minus the amount of required bank reserves at each turn. At a 10% reserve requirement, $12 billion of new high-power money could generate in theory up to $120 billion of new bank money in the form of recycled bank loans from new deposits by borrowers.

The Brady Commission investigation of the 1987 crash showed that on October 19, 1987, portfolio insurance trades in S&P 500 Index futures and New York Exchange stocks that crashed the market amounted to only $6 billion by a few large traders, out of a market trading total of $42 billion. The Fed’s injection of $120 billion was three times the market trading total and 20 times the trades executed by portfolio insurance.

Yet post-mortem analyses of the 1987 crash suggest that though portfolio insurance strategies were designed to be interest-rate-neutral, the declining Fed funds rate was actually causing financial firms that used these strategies globally to lose money from exchange-rate effects. The belated awareness of this effect caused many institutions that had not understood the full dynamics of the strategies to shut down their previously highly profitable bond arbitrage units.

The rise of hedge funds

This move later led to the migratory birth of new, stand-alone hedge funds such as Long-Term Capital Management (LTCM), which continued to apply similar highly leveraged strategies for spectacular trading profit of more than 70% returns on equity that eventual led it to the edge of insolvency when Russia unexpectedly defaulted on its dollar bonds in the summer of 1998. The Fed had to orchestrate a private-sector creditor bailout of

LTCM to limit systemic damage to the financial markets. The net effect was to extend the liquidity bubble further – causing it to migrate from a distressed sector to a healthy sector.

The 1987 crash reflected a stock-market bubble burst the liquidity cure for which led to a property bubble, which, when it also burst, in turn caused the savings-and-loan (S&L) crisis.

While the 1987 crash was technically induced by program trading, the falling dollar was also a major factor. Although the dollar had started to decline in exchange value by late February 1985 due to the US fiscal deficit, that decline had yet to reduce the US trade deficit, causing protectionist sentiment in the US to mount as the trade deficit swelled to an annual rate of $120 billion in the summer of 1985.

The issue of exchange rates

In part to deflect protectionist legislation, US officials arranged a meeting of the Group of 5 (G-5 – France, Germany, Japan, the United Kingdom, and the United States) at the Plaza Hotel in New York on September 22, 1985, with the purpose of ratifying an initiative to bring about an orderly decline in the dollar, observing that “recent shifts in fundamental economic conditions among their countries, together with policy commitments for the future, have not been fully reflected in exchange markets”, and concluded that “further orderly appreciation of the main non-dollar currencies against the dollar is desirable”, and that the G5 members “stand ready to cooperate more closely to encourage this”.

During the seven weeks following the Plaza Accord, G-5 authorities sold nearly $9 billion, of which the US sold $3.3 billion for other currencies, while speculators profited by shorting the dollar.

The dollar had declined to seven-year lows in early 1987 amid signs of weakness in the US economy while the US trade deficit continued to grow. Demand was sustained not by income but by debt. Public statements by the Ronald Reagan administration officials were interpreted in exchange markets as indicating a lack of official concern about the ramifications of further declines in the dollar.

On February 22, 1987, officials of the G-5 plus Canada and Italy met at the Louvre in Paris to announce that the dollar had fallen enough. But despite heavy intervention purchases of dollars following the Louvre Accord, the dollar continued to decline, particularly against the yen. Market participants perceived delays in the implementation of expansionary fiscal measures in Japan expected after the Louvre Accord and talks of trade sanctions on some Japanese products heightened concern about tension in US-Japanese trade relations.

Following the Louvre Accord, the G-7 authorities intervened heavily in support of the dollar throughout the episodes of dollar weakness in 1987, and sold dollars on several occasions when the dollar strengthened significantly. Net official dollar purchases by the G-7 and other major central banks effectively financed more than two-thirds of the $144 billion US current account deficit in 1987. The US share of these purchases was $8.5 billion, and the share of the other G-7 countries was $82 billion, since the non-dollar export-dependent governments wanted desperately to halt the appreciation of their currencies.

Record US trade deficits and market perceptions that the G-7 authorities were pursuing monetary measures best suited to their own separate domestic economic objectives soon sparked a further sell-off of the dollar. This contributed to a worldwide collapse of equity prices, which had risen to levels unsupported by fundamentals. The dollar’s decline gathered new momentum when the Federal Reserve under its new chairman, Greenspan, moved more aggressively than its foreign counterparts to supply liquidity in the aftermath of the 1987 stock market crash which had been triggered by program trading on portfolio insurance derivatives arbitraging on macroeconomic instability in exchange rates and interest rates.

Domestic accommodative monetary stance

The Federal Reserve’s actions under Greenspan in 1987 led market participants to conclude that the Fed would emphasize domestic market objectives with accommodative monetary stance, if necessary at the cost of a further decline in the dollar. By year-end, the dollar’s value had fallen 21% against the yen and 14% against the mark from its levels at the time of the Louvre Accord, while Greenspan, the wizard of bubble-land, was on his way to being hailed as the greatest central banker in history.

Two decades later, by 2007, the Greenspan put was called by the market and trillions of dollars were lost.

The issue of unemployment

Half a century before 1987, beginning in 1921, deflation had descended on the US economy like a perfect storm from Fed tight monetary policy under chairman Daniel R Grissinger, with farm commodity prices falling 50% from their 1920 peak, throwing farmers into mass bankruptcies. Business activity fell by one-third; manufacturing output fell by 42%; unemployment rose fivefold to 11.9%, adding 4 million to the jobless count.

Since mid-2007, the US has lost more than 6 million jobs, with 4.4 million jobs lost in the first year of the Obama administration. Latest government estimate puts the Great Recession of 2008 as having lost 8.4 million jobs thus far and no more than 1.4 million jobs are expected to be restored by the end of 2010. Unemployment is expected to stay near double digit for the foreseeable future. If workers who have given up looking for work are also counted, the unemployment rate is close to 14% in 2010.
Some are attempting to put a positive spin on US jobs numbers for February 2010, when the unemployment rate, though still at 9.7%, held steady. The economy shed 36,000 jobs in January, but the good news was that the pace of job loss was moderating. An average of 27,000 jobs was lost each month since November 2009, compared with 727,000 jobs a month on average over the same period in 2008. When the laws of gravity says what goes up must eventually come down, there is no law that say what goes down will eventually come back up. That is how swimmers drown; they float back up only after life has long left the body. Only dead bodies float naturally.

While the unemployment rate is rising more slowly, it seems likely to remain high. And despite the recent policy insistence that the top three priorities are jobs, jobs and jobs, both congress and the Obama administration are not taking concrete steps to create them quickly beyond the usual lukewarm tax incentives.

By February 2010, 8.4 million jobs had been lost since the financial crisis began in July 2007. The normal 2.7 million jobs needed to absorb new workers coming into the economy were never created, leaving the economy bereft of 11.1 million jobs. To fill that cumulative employment gap while keeping a growing work force fully employed would require more than 400,000 new jobs a month for the next three years, considerably in excess of even the most optimistic projections under current job creation policies and programs. Further, healthcare reform, if it is expected to save cost, will inevitably include a reduction of jobs.

Five states reported new highs for joblessness in January 2010: California, at 12.5%; South Carolina, 12.6%; Florida, 11.9%; North Carolina, 11.1%; and Georgia, 10.4%. Michigan’s unemployment rate is still the nation’s highest, at 14.3%, followed by Nevada with 13% and Rhode Island at 12.7%. South Carolina and California rounded out the top five.

Employers are unlikely to make new hires until they can profitably restore their current part-time work force to full time. In the private sector, just restoring hours cut during the recession will neutralize the equivalent of 2.8 million new jobs.

As of June 2010, the US, with a working population of 131,456,000 out of a total population of 307,000,000, had 14,600,000 workers unemployed, yielding an unemployment rate of 9.5%. But unemployment is not equally shared among all worker types. Among teenagers it was 25.7%, among blacks was 15.4%, among Hispanics 12.4%, among whites 8.6% and among Asians 7.7%.

In July, the US jobless rate held steady at 9.5%, while the government’s broader measure of unemployment was also unchanged at 16.5%. The comprehensive gauge of labor under utilization, known as the “U-6″ for its data classification by the Labor Department, measures people who have stopped looking for work or who cannot find full-time jobs. Both rates held steady despite a drop in the number of people who are employed. The number of unemployed people in the work force dropped, but that was more than offset by a decline in the overall size of the work force still looking for work. Though more people were no longer in the labor force, fewer of those dropouts said they were currently looking for work. This helped keep the broader rate steady.

The labor force data were affected by a temporary end to extended unemployment benefits. The Labor Department survey was conducted before the senate expanded an extended-jobless-benefits program through the end of 2010. Beginning in August 2010, many of those people who dropped out of the labor force in the previous two months may return to active job seeking. If the number of jobs created remains as muted as it has been the previous few months, it could send both unemployment rates higher.

The battle over the extension of unemployment benefits in the senate set the stage for more bruising fights in the not-too-distant future. Lawmakers on July 21 voted to continue eligibility for extended unemployment benefits through late in the year. But if history is any guide, there will likely be at least one more call for an extension.

Meanwhile, the legislation allows job seekers to receive unemployment benefits for up to 99 weeks, depending on their state of residence. In the coming months, the number of recipients who remain unemployed beyond 99 weeks could increase substantially.

According to an analysis by Goldman Sachs economist Alec Phillips, unemployment benefits are extended an average of 23 months following the peak in unemployment rate. In the current downturn, the peak in the jobless rate – 10.1% – came in October 2009. To reach the average, unemployment benefits would need to be extended through September 2011, which would require another act of congress.

Congress is taking its time debating an undersized jobs bill that is not expected to create anywhere near the jobs that the economy needs in 2010.

The next unemployment trouble will come from the public sector. Without timely and adequate federal aid, the states and local governments will be forced by falling tax revenue to tighten fiscal budgets, which will mean layoffs and cancelled private contracts, both of which would squeeze demand in the private sector to further reduce local government revenue in a downward spiral.

Thus a sound fiscal policy does not automatically mean a balanced fiscal budget even in the long run. The current mantra on fiscal austerity adds up to a poor fiscal policy.

Source: Asia Times

The figure that shows it pays to be a man

· Gender pay gap among managers on rise again
· Number of senior women quitting also on increase

The gender pay gap among managers across Britain has widened for the first time in 11 years as women, from trainees to chief executives, have failed to keep pace with the rise in male earnings, the Chartered Management Institute disclosed yesterday.

In a survey of more than 42,000 managers in every sector, it found women averaged £43,571 last year, while the men averaged £49,647.

The gap had been shrinking, from 13.6% of earnings in 2003 to 11.8% in 2005, as more women have broken through the glass ceiling blocking career progression. But last year it widened to 12.2% among managers of all grades – and at director level the gulf was even more pronounced, increasing from 20% to 23%.

The institute said this departure from the trend was worrying. And the Equal Opportunities Commission said: “It is alarming to hear that for this section of the workforce the gender pay gap is actually getting worse.”

The biggest bastion of inequality was in the food and drink industry, where male managers earned 46% more than their female counterparts, closely followed by people working in pensions and insurance, where the gap was 43.2%. In human resources – the managers who are supposed to enforce the equal pay legislation – the gap between men and women was 40; and in retailing it was 33.9%.

The most equal sectors were IT, where the gap was 11.7%, the public sector and charities, where it was only 0.7%.

The survey found that more than a third of Britain’s managers are women and they are climbing up the corporate ladder faster than their male colleagues.

The average female team leader is 37, five years younger than her male counterpart. The average female department head is 40, three years younger than her male equivalent. And the average female director is 44, four years younger than the boardroom males.

Women managers were also more likely to be awarded a performance bonus. Last year 63.4% of the women got a one-off payment, compared with 55.9% of men.

Yet their average overall earnings lagged £6,076 behind the men’s and there were indications that more women were responding by quitting their jobs, in many cases to set up their own businesses outside the discriminatory world of paid employment.

Last year 7.8% of female managers handed in resignations, compared with 6.4% of male colleagues. It was the highest female resignation rate since 2002.

Jo Causon, the institute’s marketing director, said: “It is clear the pull of promotion is not being matched by parity in pay. Despite the weight of legislation and the reality that reward should match responsibility, gender bias seems to be getting worse, not better.”

The widening earnings gap might be partly due to a relatively high proportion of women managers in the public sector, where pay increases were lower last year after a period of substantial growth. But Ms Causon said employers should be worried that the earnings gap was more than £6,000 and rising. They were struggling to recruit and retain good managers and increasing gender inequality was not the answer.

The survey also found women wanted more opportunities for training and career development, a better working environment and flexible working, she said.

Skills crisis

Val Lawson, chair of the Women in Management Network, said: “The fact that the proportion of women in senior positions continues to grow is encouraging, but their increasing likelihood to resign is a cause for concern. If employers allow this trend to continue the knowledge gap in UK organisations will be exacerbated at the very time we are trying to challenge the skills crisis.”

Jenny Watson, chair of the Equal Opportunities Commission, said the evidence of a widening pay gap was alarming and underlined the need for updating anti-discrimination legislation.

The Department for Communities and Local Government ended consultation yesterday on a “single equality bill” that the government is expected to publish in draft form next year. Ms Watson said: “The Equal Pay Act has been in place for more than 30 years and is now in serious need of modernisation. The EOC is calling for employers to tackle systemic pay inequality effectively.”

Jenny Westaway, project manager of the Fawcett Society, said this “worrying evidence” highlighted the need for the government to act to “stop women being short changed thousands of pounds a year”. Last week a Guardian survey of Britain’s top 100 companies found only two had female chief executives last year and their pay lagged well behind the male average.

Source: Guardian UK

European Economy: Debts and A Shaky Financial Structure

Speaking to reporters at the end of last week, the head of the European Central Bank (ECB), Jean-Claude Trichet, sought to play down speculation on the possibility of the euro-zone entering a new recession.

“We are in a situation,” he said, “where a number of facts and figures and data are not, I would say, confirming that we would have stagnation or a double-dip [recession]… I see perhaps a tendency [...] from outside to be excessively pessimistic [...] and I think that the figures that we have are not confirming this pessimism.”

Trichet was speaking after a meeting of the ECB governing council decided to maintain its core interest rate at an all-time low of one percent for the 15th successive month. His attempt to calm the markets followed a number of international reports that made precisely such pessimistic predictions for the economies of the European Union and the euro-zone.

In a report issued last Thursday, the International Monetary Fund (IMF) forecast that growth in the euro-zone would be the world’s lowest in 2010 and 2011. According to the new IMF estimates, the world economy will grow by 4.6 percent in 2010 and by 4.3 in 2011. The euro-zone, however, will grow by only one percent in 2010 and 1.3 percent for the following year.

The IMF forecast of stagnation for the European economy was supported by figures released last Wednesday by the EU statistical office, Eurostat, which put economic growth in the first quarter of 2010 at just 0.2 percent.

The Eurostat figure applies to the gross domestic product of both the 27-member European Union and the 16-member euro-zone. Should the Eurostat estimate of 0.2 growth be replicated for the remaining three quarters of this year, the annual rate of 0.8 percent would lag behind even the IMF’s projected figure of just one percent.

The Eurostat figures reveal substantial variations between individual countries. Having implemented one of the most ferocious austerity programs in all of Europe, the economy of Ireland registered the most growth (2.7 percent), followed by Sweden (1.4 percent) and Portugal (1.1 percent).

At the bottom end, Lithuania’s economy shrank by 3.9 percent compared to the last quarter of 2009. Other economies with a shrinkage in economic activity included Austria, Finland, Estonia, Romania, Slovenia and Greece.

In Britain, the latest report by the Office for National Statistics (ONS) increased the estimate for the economic damage suffered since the eruption of the financial crisis in the autumn of 2008. The ONS now says the British economy contracted by 6.4 percent, instead of its initial estimate of 6.2 percent, from its peak in the first three months of 2008 to its trough in the final three months of 2009.

The economics editor of the Guardian, Larry Elliott, concluded his summary of the report: “Exports are struggling, the consumer sector is depressed, and the prop from the public sector is about to be kicked away. The second half of 2010 will be dominated by talk of double-dip recession.”

With economies across the continent either in the doldrums or shrinking, the IMF noted that there are significant dangers for the world economy from the continued existence of high levels of toxic assets on the balance sheets of European banks. The IMF report declared that the European banking system is plagued by a “legacy of unfinished cleansing” which has left “pockets of vulnerability, overcapacity, and poor profitability.”

Despite the fact that the ECB has kept its interest rates at record low levels to encourage banks to lend, the IMF report noted that banks have pulled back from lending to one another, leaving many European banks to rely on short-term loans from the ECB to stay afloat.

Europe’s weakest economies—Greece, Spain, Portugal and others—have seen a steady rise in the interest they must pay to those who invest in their government bonds.

According to an article in the Wall Street Journal, a total of $1.7 trillion in euro-zone government bonds must be redeemed in 2010-2011. This is far higher than the levels of refinancing for the US, the UK or elsewhere.

In response to the relentless pressure of the financial markets, virtually all of the countries of Europe have announced austerity measures which threaten to further depress economies already suffering from rising unemployment and slumping consumer demand.

Jose Vinals, director of the IMF’s monetary and capital markets department, said last week that Europe’s debt and banking problems “could spill over to other regions and stall the global recovery.”

The IMF called upon the euro-zone governments to make the EU’s emergency €500 billion rescue fund for European economies “fully operational” and appealed to the ECB to prepare to make new purchases of government bonds. It also called on the EU to explain how it intends to shore up banks that fail stress tests.

The stress tests of European banks, the results of which are due to be published on July 23, are modeled after the tests carried out last year on US banks, and are just as worthless. Although presented by Trichet last week as a means of forcing banks to “open their books,” the European stress tests are utterly anodyne.

Under the headline “Banal Findings,” the Financial Times Deutschland summed up the opinion of the financial world, commenting caustically: “[T]he question is how long investors will let themselves be treated as stupid… the investigation will hardly bring something to light that isn’t already known […] The reason for this farce is obvious: European governments had to decide to publish results in order to calm the markets [...] But in case something really disturbing does emerge about the situation of the banks, they don’t have a plan. In any event, the tests are designed so that, in the end, no bank will fail them.”

Anton Hemerijck, professor of institutional policy analysis at VU University Amsterdam, warned recently: “In a panic move, Northern Europe could adopt stringent austerity policies that would snuff out any prospects for growth. The countries of southern Europe are depending on their northern European neighbours to provide the impetus for their economic recovery. If this does not happen, we may well be in a period of calm before the storm.”

- Stefan Steinberg

Job Hopping: Are you up for it ?

People in their 20s on average change jobs every 18 months. People in their 30s — at least the ones that continue to do well in their careers — change jobs frequently as well, although at a slower pace than the 20 somethings. So if you think job-hopping is bad, change your thinking. Job hoppers are not quitters. In fact, they make better co-workers and better employees and I bet are generally more satisfied with their work life.

Here’s why:

1. Job hoppers have more intellectually rewarding careers.

In almost any job, the learning curve is very steep early on. And then it goes flat. So by the end of two years at the same job, you often have little left to learn. Which makes me wonder what people are doing to keep their brains alive if they stay at the same job for 20 years. It also makes me certain that job hoppers know more.

If you change jobs often, then you’re always challenged with a lot to learn — your learning curve stays high. This is true for office skills, and industry specific knowledge. It also applies to your emotional intelligence. The more you have to navigate corporate hierarchies and deal with office dramas, the more you learn about people and the better you will become at making people comfortable at work. And that’s a great skill to have.

2. Job hoppers have more stable careers.

Corporate America doesn’t provide stability for its employees. The only people who think it does are really old and completely out of touch. There are layoffs and downsizing and just-in-time hiring and contract workers — realities that barely existed a generation ago. The stability you get in your career comes from you. If you’re counting on some company to give you stability, realizing this is scary. But if you believe in yourself and your abilities and treat your career with this understanding, then it’s no problem. You can create career stability — you just have to do it on your own.

The way you do that is through networking. Because you can be sure you’ll need to find many jobs in your lifetime, you want network as efficiently as you can. After all, the most efficient way to find a job is through a network. It’s how most people land jobs. People who work for lots of companies have a larger network than people who stay in one place for long periods of time. Which is why job-hopping creates stability.

3. Job hoppers are higher performers.

If you know you are going to leave your job in the next year, you’re going to be very conscious of your resume — that is, what skills you’re tackling, what you’re achieving, whether you’re becoming an expert in your field. These issues do not generally concern someone who has been in a job for five years and knows he’s going to stay another five years. So job hoppers are always looking to do really well at work, if for no other reason than it helps them get their next job.

You can’t job hop if don’t add value each place you go. That’s why job hoppers are usually overachievers on projects they are involved in; they want something good to put on their resume. So from employers’ perspective, this is a good thing. Companies benefit more from having a strong performer for 18 months than a mediocre employee for 20 years. (And don’t tell me people can’t get up to speed fast enough to contribute. Fix that. It’s an outdated model and won’t attract good employees.)

4. Job hoppers are more loyal.

Loyalty is caring about the people you’re with, right? Job hoppers are generally great team players because that’s all they have. Job hoppers don’t identify with a company’s long-term performance, they identify with their work group’s short-term performance. Job hoppers want their boss to adore them so they get a good reference. Job hoppers want to bond with their co-workers so they can all help each other get jobs later on. And job hoppers want to make sure everyone who comes into contact with them has a good experience with them; it’s not like they have ten years on the job to fix a first impression.

This is why job hoppers care more about their co-workers and will go further to make them happy than long-term employees. And it if you think about it, this makes sense for a company, too: The company isn’t hiring you with any decade-long commitment, so you would be foolish to think you have to give one.

5. Job hoppers are more emotionally mature.

It takes a good deal of self-knowledge to know what you want to do next, and to choose to go get it rather than stay someplace that for the moment seems safe. It takes commitment to personal growth to give up career complacency and embrace a challenging learning curve throughout your career — over and over. And it’s a brave person who can tell someone, “I know I’ve only been working here for a month, but it’s not right for me, so I’m leaving.”

Doubtless you’ll hear that you should stick it out, show some loyalty, give it at least a year or two. But why should you take time out of your life to spend your days doing something you know is not right for you?

It is okay to quit. No career is interesting if it’s not engaging and challenging, and your most important job is to find that — over and over. Do not settle for outdated workplace models that accept complacency and downplay self-knowledge. Sure, the job market is tough nowadays – but that’s no reason to settle.

 Source: P. Trunk

Mapmaking for the masses, online

On the Web, anyone can be a mapmaker

With the help of simple tools introduced by Internet companies recently, millions of people are trying their hand at cartography, drawing on digital maps and annotating them with text, images, sound and videos.

In the process, they are reshaping the world of mapmaking and collectively creating a new kind of atlas that is likely to be both richer and messier than any other.

They are also turning the Web into a medium where maps will play a more central role in how information is organized and found.

Already there are maps of biodiesel fueling stations in New England, yarn stores in Illinois and hydrofoils around the world. Many maps depict current events, including the detours around a collapsed San Francisco Bay area freeway, and the path of two whales that swam up the Sacramento River delta in May.

Increasingly, people will be able to point their favorite mapping service to a specific location and discover many layers of information about it: its hotels and watering holes, its crime statistics and school rankings, its weather and environmental conditions, the recent news stories and historical events that have shaped it. A good portion of this information is being contributed by ordinary Web users.

James Lamb of Federal Way, Washington, created an online map to illustrate the spread of graffiti in his town and asked other residents to contribute to it. “Any time you can take data and represent it visually, you can start to recognize patterns and see where you need to put resources,” said Lamb, whose map now pinpoints, often with photographs, nearly 100 sites that have been vandalized.

In aggregate, these maps are similar to Wikipedia, the online encyclopedia, in that they reflect the collective knowledge of millions of contributors.

“What is happening is the creation of this extremely detailed map of the world that is being created by all the people in the world,” said John Hanke , director of Google Maps and Google Earth. “The end result is that there will be a much richer description of the earth.”

This fast-growing GeoWeb, as industry insiders call it, is in part a byproduct of the Internet search wars among Google, Microsoft, Yahoo and others. In the race to popularize their map services – and dominate the potentially lucrative market for local advertising on maps – these companies have created the tools that are empowering people with minimal technical skills to do what only professional mapmakers were able to do before.

“It is a revolution,” said Matthew Edney, director of the History of Cartography Project at the University of Wisconsin at Madison. “Now with all sorts of really very accessible, very straightforward tools, anybody can make maps. They can select data, they can add data, they can communicate it with others. It truly has moved the power of map production into a completely new arena.”

Online maps have provided driving directions and helped Web users find businesses for years. But the Web mapping revolution began in earnest two years ago, when leading Internet companies first allowed programmers to merge their maps with data from outside sources to make “mash-ups.” Since then, for example, more than 50,000 programmers have used Google Maps to create mash-ups for things like apartment rentals in San Francisco and the paths of airplanes.

Yet that is nothing compared with the boom that is under way as mapping tools are opened up to everyone. In April, Google introduced a service called MyMaps that makes it easy for users to create customized maps. Since then, users of the service have created more than four million maps of everything from where to find good cheap food in New York to summer festivals in Europe.

More than one million maps have been created with a service from Microsoft called Collections, and 40,000 with tools from Platial, a technology start-up. MotionBased, a Web site owned by Garmin, a maker of navigation devices, lets users upload data they record on the move with a Global Positioning System receiver. It has amassed more than 1.3 million maps of hiking trails, running paths, mountain bike rides and other adventures.

On the Flickr photo-sharing service, owned by Yahoo, users have “geotagged” more than 25 million pictures, providing location data that allow them to be viewed on a map or through 3-D visualization software like Google Earth.

The maps sketched by this new generation of cartographers range from the useful to the fanciful and from the simple to the elaborate. Their accuracy, as with much that is on the Web, cannot be taken for granted.

“Some people are potentially going to do really stupid things with these tools,” said Donald Cooke, chief scientist at Tele Atlas North America, a leading supplier of digital street maps. “But you can also go hiking with your GPS unit, and you can create a more accurate depiction of a trail than on a USGS map.” Cooke was referring to the United States Geological Survey.

April Johnson, a Web developer from Nashville, Tennessee, has used a GPS device to create dozens of maps, including many of endurance horse races – 50-mile, or 80-kilometer, treks through rural trails or city parks.

“You can’t buy these maps, because no one has made them,” Johnson said. Her maps on the MotionBased site include things like the distance, speed and elevation of her rides.

Angie Fura used one of Johnson’s maps to help organize the Trace Tribute, an endurance ride on trails in Tennessee, and distributed the map to dozens of other riders. “It gives riders an opportunity to understand what the race is like, and it allows them to condition their horses in accordance,” Fura said.

 

Until recently, most Web maps were separate islands that could only be viewed one at a time and were sometimes hard to find. But Google and Microsoft, which have been the most aggressive in pushing new Web mapping technologies, have developed tools that make it possible for multiple layers of data to be viewed on a single map. And Google is working to make it easier to search through all online maps, whether or not they were created with its tools.

Now, a tourist heading to, say, Maui can find the hotels and restaurants on the island and display them on a map that also superimposes photos from Flickr and users’ reviews of various beaches.

The same information is quickly moving from two-dimensional to three-dimensional renderings. Microsoft, for example, has created 3-D models of 100 cities worldwide and plans to have 500 models in the next year.

“You will have a digital replica of the world in true 3-D,” said Erik Jorgensen, general manager of Live Search at Microsoft.

For the Internet search companies, these efforts are part of a race to capture the expected advertising bonanza that will come as users browse through these maps on their computers or cellphones in search of businesses and services. In the process, they are creating technologies whose effect could be similar to that of desktop publishing software, which turned millions of computer users into publishers.

“The possibilities for doing amazing kinds of things, to tell stories or to help tell stories with maps, are just endless,” said Dan Gillmor, director of the Center for Citizen Media, a project affiliated with the Harvard University Berkman Center for Internet & Society and the journalism school at the University of California at Berkeley.

Some of Gillmor’s journalism students are working with a Dartmouth University researcher to add photographs, videos and interviews to a map project documenting the house-by-house reconstruction of a section of New Orleans. Gillmor wants local residents to contribute to the project, which uses Platial’s map service.

“The hope is that the community will tell the story of its own recovery with the map as the dashboard,” he said. “We have just seen the beginning of what people are going to do with this stuff.”

SF Gate

 

Marketers get in touch with web feelings

New field of sentiment analysis is crunching emotions into hard data to serve the bottom line

Computers may be good at crunching numbers, but can they crunch feelings?

The rise of blogs and social networks has fuelled a bull market in personal opinion: reviews, ratings, recommendations and other forms of online expression. For computer scientists, this fast-growing mountain of data is opening a tantalizing window into the collective consciousness of Internet users.

An emerging field known as sentiment analysis is taking shape around one of the computer world’s unexplored frontiers: translating the vagaries of human emotion into hard data.

This is more than just an interesting programming exercise. For many businesses, online opinion has turned into a kind of virtual currency that can make or break a product in the marketplace.

Yet many companies struggle to make sense of the caterwaul of complaints and compliments that now swirl around their products online.

As sentiment analysis tools begin to take shape, they could not only help businesses improve their bottom lines, but also eventually transform the experience of searching for information online.

Several new sentiment analysis companies are trying to tap into the growing business interest in what is being said online.

“Social media used to be this cute project for 25-year-old consultants,” said Margaret Francis, vice-president for product at Scout Labs in San Francisco. Now, she said, “top executives are recognizing it as an incredibly rich vein of market intelligence.”

Scout Labs, backed by the venture capital firm started by the CNet founder Halsey Minor, recently introduced a subscription service that allows customers to monitor blogs, news articles, online forums and social networking sites for trends in opinions about products, services or topics in the news.

In early May, the ticket marketplace StubHub used Scout Labs’ monitoring tool to identify a sudden surge of negative blog sentiment after rain delayed a Yankees-Red Sox game.

Stadium officials mistakenly told hundreds of fans that the game had been cancelled, and StubHub denied fans’ requests for refunds, on the grounds that the game had actually been played. But after spotting trouble brewing online, the company offered discounts and credits to the affected fans. It is now re-evaluating its bad-weather policy.

“This is a canary in a coal mine for us,” said John Whelan, StubHub’s director of customer service.

Jodange, based in Yonkers, N.Y., offers a service geared toward online publishers that lets the firm incorporate opinion data drawn from more than 450,000 sources, including mainstream news sources, blogs and Twitter.

Based on research by Claire Cardie, a Cornell University computer science professor, and Jan Wiebe of the University of Pittsburgh, the service uses a sophisticated algorithm that not only evaluates sentiments about particular topics, but also identifies the most influential opinion holders.

Jodange, whose early investors include the National Science Foundation, is currently working on a new algorithm that could use opinion data to predict future developments, like forecasting the impact of newspaper editorials on a company’s stock price.

In a similar vein, The Financial Times recently introduced Newssift, an experimental program that tracks sentiments about business topics in the news, coupled with a specialized search engine that allows users to organize their queries by topic, organization, place, person and theme.

Using Newssift, a search for Wal-Mart reveals that recent sentiment about the company is running positive by a ratio of slightly better than two to one. When that search is refined with the suggested term “Labour Force and Unions,” however, the ratio of positive to negative sentiments drops closer to one to one.

Such tools could help companies pinpoint the effect of specific issues on customer perceptions, helping them respond with appropriate marketing and public-relations strategies.

For casual web surfers, simpler incarnations of sentiment analysis are sprouting up in the form of lightweight tools like Tweetfeel, Twendz and Twitrratr. These sites allow users to take the pulse of Twitter users about particular topics.

A quick search on Tweetfeel, for example, reveals that 77 per cent of recent tweeters liked the movie Julie & Julia.

But the same search on Twitrratr reveals a few misfires. The site assigned a negative score to a tweet reading “julie and julia was truly delightful!!”

That same message ended with “we all felt very hungry afterwards” – and the system took the word “hungry” to indicate a negative sentiment.

While the more advanced algorithms used by Scout Labs, Jodange and Newssift employ advanced analytics to avoid such pitfalls, none of these services works perfectly.

“Our algorithm is about 70 to 80 per cent accurate,” said Francis, who added that its users can reclassify inaccurate results so the system learns from its mistakes.

Translating the slippery stuff of human language into binary values will always be an imperfect science, however.

“Sentiments are very different from conventional facts,” said Seth Grimes, the founder of the suburban Maryland consulting firm Alta Plana, who points to the many cultural factors and linguistic nuances that make it difficult to turn a string of written text into a simple pro or con sentiment. “`Sinful’ is a good thing when applied to chocolate cake,” he said.

The simplest algorithms work by scanning keywords to categorize a statement as positive or negative, based on a simple binary analysis (“love” is good, “hate” is bad).

But that approach fails to capture the subtleties that bring human language to life: irony, sarcasm, slang and other idiomatic expressions.

Reliable sentiment analysis requires parsing many linguistic shades of grey.

Source: TS

 

Thinking negatively can boost your memory, study asserts

Bad moods can actually be good for you, with an Australian study finding that being sad makes people less gullible, improves their ability to judge others and also boosts memory.
The study, authored by psychology professor Joseph Forgas at the University of New South Wales, showed that people in a negative mood were more critical of, and paid more attention to, their surroundings than happier people, who were more likely to believe anything they were told.

“Whereas positive mood seems to promote creativity, flexibility, cooperation, and reliance on mental shortcuts, negative moods trigger more attentive, careful thinking paying greater attention to the external world,” Forgas wrote.
“Our research suggests that sadness … promotes information processing strategies best suited to dealing with more demanding situations.”

For the study, Forgas and his team conducted several experiments that started with inducing happy or sad moods in their subjects through watching films and recalling positive or negative events.
In one of the experiments, happy and sad participants were asked to judge the truth of urban myths and rumors and found that people in a negative mood were less likely to believe these statements.
People in a bad mood were also less likely to make snap decisions based on racial or religious prejudices, and they were less likely to make mistakes when asked to recall an event that they witnessed.

The study also found that sad people were better at stating their case through written arguments, which Forgas said showed that a “mildly negative mood may actually promote a more concrete, accommodative and ultimately more successful communication style.”
“Positive mood is not universally desirable: people in negative mood are less prone to judgmental errors, are more resistant to eyewitness distortions and are better at producing high-quality, effective persuasive messages,” Forgas wrote.
The study was published in the November/December edition of the Australian Science journal.

Source: Reuters