Support Democracy

American interests are best served by promoting the pursuit of freedom and self-determination rather than supporting regimes reviled by their own people.

In the traditionally stagnant Arab world, events have moved at lightning speed in recent days.  The unexpected revolt against the dictator Ben Ali in Tunisia, ignited by the self-immolation of one disaffected young man, has led to region-wide protests by citizens fed up with their own repressive leaders.  Now, the area's most populous nation and most significant power, Egypt, is ablaze in revolution, and the 30-year-plus reign of aging autocrat Hosni Mubarak is on the brink.

Official U.S. reaction to the plight of key American ally Mubarak appears to be slowly adapting.  Only a few days ago, Vice President Joe Biden rejected the notion that the Egyptian leader was a dictator, and his comments about the aims of the protests were lukewarm at best.  This morning, in a sign that the Obama administration's position was evolving as Mubarak's position has weakened, Sec. of State Hillary Clinton spoke of "an orderly transition to meet the democratic and economic needs of the people", though no calls were made for Mubarak to step down.

Business for Profit and Social Change

Innovative business opportunities exist which can benefit corporations while serving the poor and middle-class in countries around the world.



One of the topics I have been most interested in over the past few years is innovation and entrepreneurship designed for non-traditional or under-served markets.  Mohammed Yunus, the 2006 Nobel Peace Prize Laureate, popularized the use of microfinance as a means of sustainably helping people lift themselves out of poverty.  Today, microfinance has become one of the hottest areas in the NGO/development world.

The late C.K. Prahalad published a book in 2004 called The Fortune at the Bottom of the Pyramid in which he talked about the potential business opportunities that existed to serve the world's poor (the "bottom" of the "financial pyramid").  Bill Gates described this as a way to "fight poverty with profitability".  To me, this represents a far more effective method than simply handing out money, which is unsustainable and of dubious effectiveness.  Involving the "bottom of the pyramid" in the modern economy, on the other hand, is win-win, with companies incented to provide goods and services to new markets, and those customers receiving access to what they need.

Serious About Spending Cuts?

Talk of slashing government makes for great populist campaign rhetoric, but meaningful cuts have to address defense and entitlement spending, not insignificant pork or agency budgets.

The election results are in, and this time there are no surprises.  As predicted, Republicans have made huge gains, capturing the House of Representatives and significantly narrowing the gap in the Senate.  They have ridden the dominant nationwide political trend of dissatisfaction with the performance of government and the Democrats who have been in charge of it.  Soon to be House Speaker John Boehner declared tonight that the election was "a repudiation of big government" after earlier vowing to small-government-championing Tea Party acolytes "I'll never let you down".

Several of Rep. Boehner's party colleagues attained their victory tonight promising spending cuts.  Yet the fact remains that while talk of slashing government makes for great populist campaign rhetoric, if politicians from either side of the asisle want to actually make real steps toward reducing deficits and reigning in spending, some difficult choices will have to be made.  After all, the types of proposed spending cuts we have been hearing are nothing more than symbolic measures with little impact.

Islam and Assimilation in America

However improbable, over the past month the single dominant political issue in America has been the proposed creation of an Islamic cultural center near the former site of the World Trade Center in New York City.  Far too much has already said about the so-called "Ground Zero Mosque", somehow ridiculously conflated to constitute a threat to American values and an affront to victims of 9/11.  Enough people have tried to point out the folly in denying this high-profile opportunity to display our country's tolerant and pluralistic virtue and prove that we recognize that Islam is not our enemy.  I would also add that it is sad that many political leaders do not have the clarity on our country's principles, and the courage to speak out against hysteria fueled by misinformation and bad intentions.

Public opinion polls show the project is opposed by a large majority of Americans.  The same polls indicate that an unfavorable view of Islam may not be confined just to a handful of bigoted (or opportunistic) politicians, but that it is reflective of a significant part of the population at large.  This raises the troubling question of whether the Muslim-American community has in some way failed to be accepted as part of the broader mainstream American culture in general.

Understanding "Financial Alchemy"

As a result of the financial crisis, there has been a widespread vilification of Wall Street "alchemy" and the related realization that there is little understanding among the general public of what financial innovation has accomplished.  Addressing these two points is an excellent short paper, "In Defense of Much, but Not All, Financial Innovation" by the Brookings Institution's Robert Litan.

Writing in an accessible style easily understood by a layperson, Litan provides a nice overview and examination of the finance landscape, from basics such as bank deposits, credit/debit cards, and mutual funds to the development and use of collateralized debt obligations (CDOs) and structured investment vehicles (SIVs).

Despite the prevailing anti-finance backlash of the moment, Litan reminds us that there has been a lot of financial innovation in recent decades that have been beneficial, such as ATMs, credit cards, index funds, and the rise of venture capital.  Positive financial innovations have increased convenience for customers, improved access to credit, better allocated risk, and contributed to economic growth.

On the flip side, Litan identifies socially destructive inventions like the misuse of adjustable rate mortgages (ARMs) with ludicrous interest rates; collateral debt obligations (CDOs) reliant on artifically inflated housing prices; and structured investment vehicles (SIVs) which were held off of a bank's balance sheet--thus circumventing regulation on minimum capital requirements--and reliant on the ability to rollover short-term debts.

Litan explains finance and the roots of the financial crisis very well, and his paper is full of interesting history and citations.  For example, despite the popular reputation of private equity (PE) firms' as ruthlessly buying up companies, slashing jobs, and then selling the parts, research indicates that the majority of PE acquisitions are held long-term, that they maintain normal employment growth over time, and they contribute positively to economic growth.

In concluding, Litan argues that regulation shouldn't become so cautious as to stifle the creation of new financial innovation that could be socially useful--but that reactions to threats should be quicker.  I agree.  Check out his whole paper here.