The developed world, with their statist bank regulators, has no right to preach market reforms to developing countries.

Sir, Jonathan Wheatley writes that in Mexico: “López Obrador — the old-school leftist has pushed ahead with proposals that… have caused alarm among investors, who worry that overspending will call into question the country’s investment-grade credit ratings.”“Delays to reform threaten prospects of emerging economies” March 26.

Sir, López Obrador is not the only leftist in town… in Basel, there are plenty of them.

Basel II assigns a standardized risk weight of 50% to a sovereign rated like Mexico BBB+. This means that the Basel II capital requirement for holding debt of Mexico is 4% (50%*8%). The Basel II standardized capital requirements for lending to any Mexican entrepreneur rated the same BBB+, is 8%. And so, according to the Basel Committee banks are allowed to leverage their capital 25 times their when lending to Mr López Obrador’s government, than when lending to a BBB+ or an unrated Mexican entrepreneur.

So please, do not come and preach us about internal market reforms in developing nations when external global regulators impose such statist and distorting regulations on them.

In 2007, at the High-level Dialogue on Financing for Developing at the United Nations, I presented a document titled “Are the Basel bank regulations good for development?”. My answer was a clearly argued “No!” But, of course, my chances to be heard by a U.N. Commission on Reforms of the International Monetary and Financial System chaired by Professor Joseph Stiglitz were none.

@PerKurowski

What’s the safest way to fight climate change: by centralized planning or through the market?

Sir, Tim Harford writes: We should do more to encourage innovation that attacks the climate change problem… The most obvious first step (among several worth trying) is a stiff tax on carbon dioxide emissions” “Let’s innovate a way out of our climate crisis” October 13.

I agree 100% with that. The real question though is what is to be done with the revenues of such stiff tax? There are different options. 

The first to allow governments to manage these, setting it up for good results, but also a quite likely having it much captured by the war-on-climate-change profiteers. 

The second to share out these revenues equally among all citizens, like by helping to fund a Universal Basic Income, and so that it is the market that will take the decisions on what’s to be done.

Of course there are also pseudo market solutions, like those carbon emission permits trading that handed over to speculators, a market in non-transparent carbon emission indulgences.

Sir, I am totally for the sharing out all those tax revenues among the citizens option. That would minimize the distortions, and align everyone’s incentives in the fights against climate change and poverty.

PS. In May 2016 you published a letter I wrote on how to fight the pollution in Mexico City, which was based on these arguments.

http://ourpiedaterre.blogspot.com

@PerKurowski

In order to find common Nafta ground, US, Canada and Mexico must begin by clearing for robots and automation

Shawn Donnan and Jude Webber quote Robert Lighthizer, US trade representative, having told negotiators. “Thousands of American factory workers have lost their jobs because of these provisions.” “Canada and Mexico rebuke US as Nafta renegotiation starts” August 17.

If Nafta members take notice of what robots and automation has done to manufacturing jobs, in all of their nations, then instead of facing each other as enemies they would be sharing a challenge.

It still amazes me how the recent American elections failed to recognize the job opportunities lost to automation. Had that not happened, Donald Trump would have had to speak about a Wall against robots instead, and would not have become president… not that that would have solved much either.

Jobs lost to robots and automation is not an easy problem to handle as it does produce good results too. If I was Nafta I would begin by asking my partners: “How do we make sure our grandchildren will be able to live surrounded by 1st class robots and smart artificial intelligence and not end up with 3rd class ones and dumb AI? That would be a real positive and constructive challenge for it.

http://perkurowski.blogspot.com/2017/02/here-some-disorderly-lose-cannon.html

@PerKurowski

What causes more inequality, or feelings of poverty, some CEOs’ obscene high salaries, or some prices, like those of Viagra?

Sir, I refer to David Crow’s “Cost of Viagra increases 27% as Pfizer raises US drug prices” June 3.

I have no idea why but my doctor has ordered me a different brand, so I am not a user of Viagra. That said it was astonishing to read that one single Viagra pill is now $73.85. That price must surely only be possible because of the official protection of intellectual property rights.

There should be a difference between the protections of a pharmaceutical industry, so that it can afford develop new medicines, and the protection of an extortion racket. As is, 10 Viagra pills would, at this price, represent a fairly decent monthly Universal Basic Income.

In a world in which so many prices are going down-down-down, among others because of automation and robots, can we afford to impact this way those who have to earn less and less and less income, or stay more at home, only because of automation and robots?

Perhaps Trump, instead of thinking of building up Mexican walls, should be thinking about tearing down some intellectual property protection walls. Open ended ones, like those that allowed “Martin Shkreli to raise the price of an Aids medicine from $13.50 to $750 a pill, reflects very badly on the state and governance of our society.

About a decade ago I wrote an Op-Ed in which I held that it was not logical that profits earned by means of protected intellectual property, were taxed at the same rate than those profits obtained from competing naked in the market. That argument is still valid, especially if those extra tax revenues become tax neutral, by feeding monthly UBIs.

PS. In the same vein, now we perhaps have to add a proposal on that profits generated with the use of robots, should be taxed higher than profits generated with the help of humans.

PS. Some years ago a friend, wanting to launch little-known-me as a candidate for the presidency of Venezuela, what a "friend", suggested a populist campaign based mostly on “Free Viagra for everyone”. He argued that would have more impact that my promises of sharing out all net oil revenues directly to all Venezuelans. He might have a point.

@PerKurowski

Why has the world not been duly informed about the impact on jobs of robots and dumb bank regulations?

Sir, I refer to your “incisive new global business columnist” Rana Foroohar writing, from a local perspective, that “Trump’s trade policies won’t help my town” March 6.

Let me for the umpteenth time comment on two issues 

Foroohar writes: “small and medium-sized businesses create about 60 per cent of jobs in America.” And it is precisely to “risky” SMEs that bank regulators have assigned among the largest risk-weights; which mean banks need to hold the most capital when lending to these; which means they have dis-incentivized bank lending the most, to what we most need to have access to credit. It is all so loony, especially considering that major bank crisis never result from excessive lending to this type of client… since these are perceived as risky.

Foroohar also writes: “Carrier recently cut a deal with the president to keep 1,000 jobs in Indiana rather than moving them to Mexico, only to come under fire from unions for outsourcing hundreds of others and replacing workers with robots… Those who might in the past have worked $25 an hour factory jobs now do $11-$13 an hour shifts at Walmart.”

That should indicate that our society has been surprised, unprepared, for a major event, namely that immense structural unemployment that might result from the use of robots and other variants of automation. How should we handle it? Do we not need decent and worthy unemployments? Should we at least not tax robots and cousins with any type of taxes we load on the employed so that these latter could at least compete fairly for jobs? There are hundreds of questions waiting to be answered but in this data world, we don’t find any data on for instance how many jobs were effectively taken over by robots and cousins during the last decade.

Of course, as Foroohar says, “when it comes to trade Mr Trump is fighting the last war”. But the main reason for that is that no one informed Trump or the rest that there was a new war going on”. Did anyone mention the insane bank regulations war on risk-taking, the oxygen of development? Did Hillary Clinton and Bernie Sanders talk of the robots coming? Was a Universal Basic Income possibility raised in any town-hall meeting? Who told Trump and the electorate that the building the Mexico Wall could itself represent the last decent job opportunities for many, on both sides of the wall? Sir, clearly the world has a lot of urgent catching up to do. 

@PerKurowski

How do you suggest a contrarian belief to a President without causing him great disconfirmatory feedback discomfort?

Sir, Tim Harford writes that when “I think I’m doing a good job, and then you tell me that I’m not… [research indicates] “that when this, which in the jargon is known as disconfirmatory feedback arrived, workers would then avoid contact with the people who had given them the unwelcome comments.” “If I’m cruising along in a complacent bubble, I badly need someone to explain what I’m doing wrong” January 11.

Bank regulators think they are doing great assigning a risk weight of 20% for what is AAA rated, and 150% for what is below BB-. I tell them they’re wrong, that what’s perceived as safe, contains much more danger than what is perceived as risky. I back it up with Voltaire’s “May God defend me from my friends, I can defend myself from my enemies” … and then the regulators avoid all contact with me. It sure looks like a case of reaction to a disconfirmatory feedback.

But, at a level of a Basel Committee for Banking Supervision should its members not have to be able to handle rationally any disconfirmatory feedback? And what about those even higher up?

For instance, I believe that in the race for jobs in the US, much more important than human competition from China and Mexico, is the fact that Americans have to compete with robots from everywhere that do not have to carry weights like payroll taxes.

Sir, I ask, how can I convey such a belief to a President without risking causing him great disconfirmatory feedback discomfort?

PS. Sir FT, since you have also mostly shut me up, could it be because I have gone over the level of disconfirmatory feedback you can handle? If so, how should we handle it? I ask because I have no wish to give up writing you my mind on so many things you might not agree with.

@PerKurowski

A holier than thou alliance of hysterical extreme besserwisser progressives, is pushing too many into No No Land

Sir, Janan Ganesh opines that visceral/hysterical reaction against Trump no matter how correct it might be, might evidence to many voters that progressives do not share their deeply felt concerns about national security, crime, welfare dependency and similar. “Liberalism can only win if it holds a hawkish line” February 7.

Ganesh is absolutely correct. As a Venezuelan I can testify on that this type of reaction, by a similar holier than thou besserwisser group mostly correct in their opinions preaching to the choir, only made Chavez stronger.

For instance I utterly dislike walls, foremost because you can never be real sure you or your grandchildren end up on the right side of it. But, in the case of the Mexican Wall, much more constructive would a “Yes let’s build it” be. That followed up of course with “The USA puts up the land, the Mexicans the cheaper labor, perhaps the Canadians the materials needed, and the FED, by means of a wall-easing program, buys the 1%, 50 years bonds that are needed to finance it all”. I guess that would bring the emotionally laden discussions about that wall to a more sane level… better for all.

Sir, but Ganesh also writes: “Whenever the state imposes a counterterror measure, especially one as brute as the US president’s, statistics are dug out to show that fewer westerners perish in terror attacks than in everyday mishaps. Slipping in the bath is a tragicomic favourite. We chuckle, share the data and wait for voters and politicians to see sense.”

And that, as you might intuit, irresistibly provokes me to ask the following: When the state imposes a regulatory measure based on something so brutish as believing that what is perceived as very risky is riskier for the bank system than what is perceived as very safe… why does then so few chuckle, share the info, and wait for regulators to see sense?

@PerKurowski

The real winners of President Trump’s animosity towards cars built in Mexico could be robot manufacturers.

Sir, Peter Campbell and Jude Webber refer to “Mr Trump’s ire on Tuesday, when he tweeted that GM should face a “big border tax” for importing cars from Mexico.” “Trump to give Mexican cartrade a bumpy ride”, January 5.

I have no idea of President Trump’s financial holdings, but should he own shares in robot manufacturers he should be careful about a conflict of interest, as leashing out against Mexican car jobs is a great and direct way to increase the demand for robots in the USA.

PS. Anyone who argues in favor of minimum wages should, for the same reason, also be required to disclose any personal interest in the robot industry.

PS. Off the cuff formula: Jobs lost in Mexico minus jobs gained in USA equals new sale of robots.

PS. Let robots make us an offer we can't refuse

How do you build a wall against the robots, the biggest threat for manufacturing workers here and there?

Sir, Martin Wolf quotes Richard Baldwin, author of the “The Great Convergence”, with that workers in South Carolina “are not competing with Mexican labour, Mexican capital and Mexican technology as they did in the 1970s. They are competing with a nearly unbeatable combination of US know-how and Mexican wages.” “Trump faces the reality of world trade” November 22.

That has an element to truth in it but, in many ways, the worst competition both Mexican and American manufacturing workers face in the future will come from technology, like robots.

How do you build a wall against job-stealing robots? No matter how that wall was built, your own consuming citizens would end up paying for it by paying higher prices.

One idea I have been toying with lately goes someway along the line of placing some type of payroll taxes on robots; first so as to permit us humans to be able to compete with these on a more level ground; and second so that with those revenues we could partially fund a Universal Basic Income, a Societal Dividend, which could provide us with a step-ladder to easier reach up to the growing gig-economy. 

That said, with respect to Trump and trade-deals I would just remind him of that no nation can be kept strong by cuddling up in comforting isolation and that probably the last legacy any President would want to leave behind him, is that of having weakened the Home of the Brave.

To top that up, quite gently, I would also point out to Trump that USA’s Declaration of Independence clearly states as one of its justifications, the need to stand up to “the present King of England… For cutting off our Trade with all Parts of the World”.

PS. In this context only as curiosa, the Declaration of Independence also mentions as a justification that “the present King of England…has endeavored to prevent the Population of these States… obstructing the Laws of naturalization of Foreigners; refusing to pass others to encourage their Migrations hither” 

@PerKurowski

Mexico needs carbon and petrol tax, which revenues are all redistributed by a Universal Basic Income mechanism.

Mexico needs to align incentives on pollution

Sir, Jude Webber writes about the horrible pollution caused by the excessive number of cars in Mexico City (“Corruption and car fumes clog up the capital”, Notebook, May 26) and proposes that eliminating corruption in emission testing could be an important part of solving this. Fat chance! As a Venezuelan, I know that this is not a viable route.

Ms Webber writes: “Mexicans are snapping up cars as fast as the world’s seventh largest producer can churn them out . . . Domestic consumption is the engine of economic growth so there is no official incentive to dissuade people from buying Mexican-built cars and associated products such as petrol.”

That’s really not the case. You must build up the right political and economic incentives to correct for it. If Mexico imposed carbon tax, petrol tax and a strong traffic toll system, and made sure all the revenues from it were immediately returned to the economy by means of a universal basic income, you would face a different reality. Then you would have aligned the incentives for pollution control and the fight against climate change with the fight against inequality, and that makes for a very powerful alliance.

Standing in the way, besides initial protests from car owners, would be the redistribution profiteers who would miss a chance to make political and economic capital. Just as in Venezuela.

Published in FT

Again besserwisser Martin Wolf ignores the regulatory discrimination against “the risky” when accessing bank credit

Sir, I refer to Martin Wolf’s “Legitimate business unlocks growth” June 4.

In it he writes that answering the question “What lies behind the falling productivity and rising share in total employment of small businesses [in Mexico]?” McKinsey advances, as one of three hypotheses, that: “small businesses lack access to credit. 33 percent of GDP, outstanding loans are extraordinarily small. They are also expensive”… “The unmet capital needs of firms with 10 to 250 employees represent 75 percent of what we estimate to be a $60bn credit gap in Mexico”.

But Wolf steadfastly ignores my arguments that I have expressed to him and FT in hundreds of letters… his besserwisser ego does not allow him to do otherwise, and so he does not get it.

Mexico has been on the forefront of applying Basel Committee Basel II bank regulations… and the capital requirements for banks of these instruct banks not to lend to “risky” small businesses because, if they do, they must hold much more capital than when lending to, for instance, the “infallible sovereign” of Mexico.

PS. Sir, again, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks. His problem is that, in this case, he has encountered a more correct and perhaps an even more besserwisser than he is :-)

Mexico needs to speak out against China´s renminbi manipulation

Sir I find myself 100 percent in agreement with Martin Wolfs “Evaluating the renminbi manipulation” April 7, since manipulation is what it clearly is. But that said perhaps more than the US talking and taking actions, others like Mexico, being the most affected, as it is their exports that are being displaced, should also do their share of loud screaming and hollering.

And how would US’s California stand up to EU’s Spain?

Sir Spencer Jakab makes a very valid point in “California and Kazakhstan – just who is the underdog? April 3. Sadly though, he used an oil cursed nation to make his case and that is a bit like comparing apples and oranges.

Having much experience in debt restructurings I am used to look not only at the possibilities of default but also at what could be left “the morning after”. In the case of Kazakhstan, if it goes down the tube, most likely it will disappear as the nation it never really became but in the case of California it will still be California, a vibrant state of the US that is of course unless Mexico makes an offer no one can refuse.

It would be interesting if Spencer Jakab repeated the analysis comparing the California of the US with the Spain of EU.

We need more solidarity among the free.

Sir Gideon Rachman rightly calls China´s manufacturing sector a headache to Mexico naming it as one of the reasons “Why Mexico is the missing Bric”, February 16. But to then jump to the conclusion of Mexico´s “economic underperformance” hides the fact that China´s competitiveness is not exclusively based on economic performance but on foreign exchange manipulations. For a still so much communistic country like China it is much easier to keep their currency artificially low than for a country like Mexico that, no matter their Carlos Slim, is an immensely freer country.

The free countries need to show more solidarity among them in order to defend themselves from the not so free.

Mexico should be up in arms against China and its weak renminbi.

Sir Arvind Subramanian, based on Dani Rodrik’s estimates, makes a solid case for how “It is the poor [emerging countries] who pay for the weak renminbi” February 4. The argument gets to be even clearer if using specific examples.

Mexico, should be USA’s China, had it not been for the fact that China’s political system makes it so much easier to manage a weak renminbi than Mexico’s a weak Mexican peso.

That plus 20%

Sir when Adam Thomson reports that “Calderón challenges Obama on drugs war” he quotes the Mexican president saying in reference to the help the US should offer “The help should be equivalent to the flow of money that American consumers give to the criminal”. What a splendid logical and forceful reply. The only thing that could have been added is a “plus 20% since it is a just cause”.

Viva Wall Street!

In the Washington Post of March 25 Lyla Ward, in “Who needs a fence? Viva Mexico, USA!” suggests that the USA should simply go ahead and acquire Mexico and she is obviously unaware of how the financial markets work. The fact is that as Wall Street could just as easy execute a leveraged buy out of the USA by the Mexicans financed by the Chinese, they would be more favorably inclined to do so as they could make much more money than if it was the USA buying Mexico. Having said that I wonder if it really is so necessary to formalize an affair or a takeover between the two countries, in a church or in a notary, since for all practical purposes both countries have been for quite some time living de facto together, more steamily than those who are bound together in the more formalized relationship of the European Union.